A lot of people ask me for an introduction to Masternodes (MN) because I've been into MNs since I started my crypto-journey and am able to answer some questions. I'm creating this thread in the hopes that it stirs discussion on people's approach to masternodes. This is how I approach MNs, but I know different people have different ways. So let me know your approach or ask any question you have. I'll try to answer to the best of my knowledge.

I hear a lot of people saying MNs are awesome because it's "passive income". This, in my opinion, is not really correct. To achieve high ROIs you actually have to put some work in.

Let’s start from the beginning - what are MNs

The Pioneer: DASH

MNs have been put on the map by DASH. DASH did an awesome job. They came up with the MN model as we know it today.

Dash gave a voice to their community through masternodes. Whenever something important has to be decided on the future of the coin, MN owners have the power to vote for their preferred option. We call it decentralized governance. It was the first heavily marketed and successful decentralized autonomous organisation with masternodes.

They also came up with the funding model where a part of the rewards (10%) is reserved for the development fund (creating an autonomous and community drivened treasury), which allowed them to have such an amazing development and to inject fuel in the marketing machine it has become today.

A lot of today’s MNs are either forked from Dash because their model was so successful, or follows the same model with some tweaks here and there.

Masternodes: A service to the network

Appart from giving you a voice, masternodes also provides a service to the network it is set-up on. Anyone can run a MN. MNs get rewarded for their service. Rewards are the income you will derive from your MN. You calculate the Return On Investment (ROI) your MN produces by analysing your rewards (size and frequency).

Masternodes usually are standalone servers that run a wallet and provides support for the network. They can verify transactions, coordinate mixing of coins, provide anonymity. Different coins have different use for their Masternodes, but these are the most common.

A masternode requires a collateral (in the case of Dash it is 1000 coins) that will stay locked until you decide otherwise (in which case you will lose your MN status and wont be able to collect anymore rewards), a dedicated IP address, and be able to run 24 hours a day.

Types of Masternodes:

There are multiple types of MNs, but to make things simple I divided them in 2 categories:
-The "safe" MN
-The "risky" MN

The "safe" MNs:

These are the closest thing there is to “passive income”. Usually those are more expensive to own and have a lower ROI.

I call them "safe" because these are coins that will most likely still be around in 1+ year and that have a high probability to be worth at least as much as what you put in fiat-wise.

They have a strong community, and are well established in the crypto world (which is why they usually recquire a higher investment). Usually, you can expect returns of around 6 to 15% over the course of 1 year.

These "safe" investments will allow you to mitigate losses if the coin loses value over a certain period, or multiply your gains if the coin value appreciates. If you have a 9 to 5 and can’t afford to spend hours on end on crypto, these coins are for you.

** Ex of “safe MNs”: PIVX, DASH, SYS (not yet a MN coin but soon), WAVES, STRATIS, XZC **

The "risky" MNs:

This is the jungle. There are dozens of weird, Low-key and dodgy MN coins out there. These MNs are usually cheaper to own (for obvious reasons) and have a better ROI.

With these you can expect ROIs of 30% up to 100%+ (sometimes even in the thousands %, but never for long). Mind that these ROIs are volatile and depends on a variety of things:
-The Devs goodwill
-The total number of MNs on the network
-The total supply of a coin ( Was there a premine? Are we close to a halving?)
-Other less important factors

The ROIs of these coins are so volatile that it is possible for them to go from being 500%+ to 60% in the matter of days.

This type of MNs require some serious work. First, they are low-key so not easy to find. You have to be on constant hunt for up and coming new MNs.

Here is a taste of the kind of research you should really do before falling in love with one of these coins: Join their slack, check their website and whitepaper (if any!), look at their GIThub commits, check how active the community and the development are. Try to have a sense for the future of the coin. How experienced is the dev team ? Are they trying to bring a useful solution to a problem ?

A recent trend has developed in the MN world : some devs will create a new copy/paste MN with high ROI, advertise it, sell their premine and abandon the coin (rinse and repeat). Do not get fooled by extremely high ROIs. Some might be legit, some not. Allways do your due diligence with care and attention. The chance of getting burned in these streets is high.

Other tips:

Often you won’t know how much a MN will give you in terms of ROI before you actually test it. People can be deceiving to get you to buy their “shitcoin”. Allways do your own research. I should know, I got burned before.

Since installing a new MN just to test it costs money and can be daunting (especially if you are new to masternodes), you have to estimate beforehand on your own, to the best of your capacity, the expected value (EV) of a coin you are considering:
-Check how many blocks are processed every minute/hour/day.
-Check what is the reward for finding a block.
-Check how this reward is distributed between MNs and Miners.
-Check how many MNs there are on the network.

From these numbers you can deduce the expected ROI.
Sometimes a coin is premined, sometimes it is not. Sometimes a coin’s circulating supply is very close to total supply (which would mean that soon MNs wont get rewards anymore).

All these infos are not always easy to find. This is where all the work is done. Once this is done, installing the MN is a piece of cake.

Getting started

If you made it here, you are on the right track. Engage with the community, read the threads and contribute. We are building this knowledge together. It is a work in progress.
https://masternodes.online/ is my favorite place to start. Here you will find a (non-exhaustive but quite extensive) list of MN coins and their stats (ROI at that time, collateral, number of Mns on the network...)

Final thoughts

Before getting started with MNs, the first question you have to ask yourself is : what kind of investor are you? Will you have time to do extensive research? Will you be proactive and keep a constant eye on the profitability of your MNs?
If you have all that time on your hands and the will to do serious research into unknown territories, well, have fun !

If you have a job that takes up a lot of your time, a family to look after, maybe the safer MNs are a better option. I know the risky ones are more attractive (greed), but you can get easily burned. No shame in going for the safe MNs. These are solid coins. Also there are a few gems that I consider “safe” with nice ROIs (ex : XZC)

If you don’t keep a close eye on things, you will probably lose money.

All right, that's what I could come up with for now. It's a wide topic, I'm sure I left out tons of things. Would love to hear what you have to say as well. Im allways looking to perfect my strategy and I'm looking forward to hear your opinions.