A mining pool is a group of cryptocurrency miners who combine their computational resources over a network to consolidate their computing power, increasing the likelihood of discovering a block or otherwise successfully mining for cryptocurrency. Members in a mining pool stack their processing power toward discovering a block. If the pool is successful in their work, they receive a reward, generally in the form of the associated cryptocurrency. Rewards are often shared between the persons who contributed to the operation, according to the proportion of every person’s processing power or work done relative to the whole group. In some instances, individual miners must show evidence so as to receive their rewards.
When a group of miners are in a mining pool, the way that mining is carried out by the pool is effectively combining all the individual miners’ hash rates. For instance, attaching six mining devices that achieve 335 megahashes per second (Mh/s) can create a cumulative approximately two gigahashes of mining power.
A Deeper Look at Mining Pools
The world’s oldest currency, physical gold, is obtained from the earth through the process of gold mining. Mining allows one to find hidden gold that is not yet available. Successful mining allows an individual digger or a mining company to discover gold that was not available before. As you now know, cryptocurrency mining is similar in the sense that miners are mining for digital gold (Bitcoin).
I would like to use gold mining as an illustration of how cryptocurrency mining pools work.
Let us say that a gold digger with the ability to dig 100 square meters of land in a day will take 100 days to explore one hectare of land for gold. That would mean that 100 of the same gold digger can finish the job in just a day. With 100 gold diggers, any gold found should be split equally among the 100 diggers, since all of them did their part to dig 100 square meters of land. Of the 100 gold diggers, not every single one of them will find gold in the 100 square meters of land that they dig. Some will strike gold, while others will not. But since they have chosen to work together at the beginning and promised to split the gold found, those miners who didn’t strike gold got their fair share too.
Why would the gold diggers want to work together in the first place? How will it help them in their quest to find gold? Even though you may argue that some of these miners could have done better if they mined themselves instead of in a group, since they will not have to split any gold found, it will not be as high a probability of striking gold consistently. Whereas as a group, it is much more likely that a few of the miners will strike gold and every one of the other miners can benefit from it as well.
I hope with the above example, it can be more obvious that the difference between mining in a group and mining alone, is that you will be able to have a portion of gold more consistently. Even though that piece of gold might be smaller, you are quite assured of getting one every time you mine.
A mining pool also works as a supervisor for the pool participants. The functions involve regulating the pool members’ hashes, searching for rewards through pooled efforts of available processing power, recording work done by every pool member, and allocating reward shares to every pool participant proportionally to the work done by them after proper confirmation. The pool may also receive a fee from every miner.
There are two ways that work can be assigned to pool members. The first way is to assign members a work unit consisting of a particular range of nonce, which is the number that blockchain miners are computing for. Once a pool member completes their work on the assigned range, he can ask for a new work range that he can work on.
The second way gives pool members the flexibility in picking and choosing as much work as they are able to handle. The pool does not assign any work to the pool members. However, the pool will need to ensure that no two members work on the same range. Not all cryptocurrency mining pools function in the same way. There are, nevertheless, a number of popular protocols that guide many of the most common mining pools.
Types of Mining Pool Methods
Proportional mining pools are among the most popular. In this kind of pool, miners supporting the pool’s processing power earn shares up until the point at which the pool succeeds in searching for a block. After that, each miner will receive rewards based on the number of shares they have accumulated.
Pay-per-share pools offer immediate payouts to a miner depending on their contribution to the probability that the pool finds a block. This can be determined from the computing power of their mining rig, or the hash rate. Miners are paid from the pool’s existing balance (from previous mining activities) and can withdraw their payout immediately or at any time he or she chooses to do so.
Peer-to-peer mining pools, or P2Pool, aim to avoid the pool structure from becoming too centralized. The miners incorporate a separate blockchain associated with the pool itself, and subsequently merge onto the main blockchain. This prevents the operators of the pool from cheating, by taking a larger share of profits for themselves, as well as the pool itself from failing because of a server issue.
Disadvantages of a Mining Pool
Being part of a mining pool is indeed your best way to profitability in cryptocurrency mining, but it isn’t without its drawbacks. By being a part of a mining pool, individuals give up some of their autonomy in the mining process. They are generally bound by conditions created by the pool. You will also need to pay a mining pool fee. Fees are usually paid for with your share of the cryptocurrency that was awarded by the pool.
Any rewards that the mining pool earns is divided among the people in the pool, and sometimes this may not be an equal share for the miners.
There is a risk that the operator runs away with the mining reward, or that your fellow pool miners cheat by not uploading successful nonces to the pool. You can avoid these risks by joining a reputable mining pool.
A small number of mining pools like AntPool, Poolin, Foundry USA, and F2Pool are among the biggest mining pools for Bitcoin, such that they have some control over the Bitcoin mining process. Even though several pools do make an effort to remain decentralized, these groups consolidate much of the right to guide the Bitcoin protocol. For some cryptocurrency enthusiasts, the presence of a small number of powerful mining pools goes against the decentralized structure that is intended for Bitcoin and other cryptocurrencies.
How Do You Determine the Mining Pool that is Best for You?
Reputation
There are fraudsters among pool owners and you have to look out for pools that may want to partake in your profits or take them all away. So, do your research. Check what other miners have to say about a particular pool. Look for reviews on specialized forums and connect with other miners. Do take anything you read with a grain of salt. There is rarely any smoke without a fire, so beware of pools that have many bad reviews.
Size Does Matter
In addition to recognition, one of the most significant considerations when selecting a pool is its size. As a rule, the bigger the volume, the better. The two factors that decide a pool’s size are the number of associated miners and the pool’s hash rate. Small pools with few miners and a low hash rate could be even less effective than solo mining.
One of the challenges of larger pools is that they are more selective about their miners. So if your mining rig’s power is not sufficient, you might not be able to join the mining pool. This is why you have to find the right balance between the size of the mining pool and the power of your mining rig. Since there are usually hundreds of pools for any cryptocurrency, there is a good chance you will be able to find one that fits your hardware setup.
The Pool’s Payment Rules and History
Payment rule is also an important consideration when selecting a mining pool to join. If you are a new miner and the payment threshold is high, it may be months before you can receive your first payout. Payment thresholds vary for different cryptocurrencies too. There are cryptocurrencies with small transaction fees and small thresholds, like the crypto equivalent of 20 cents or $1. The pool fee could be another factor in your decision in choosing a mining pool. However, the pool fee is usually a small percentage and may not be significant enough to deter you from any potentially rewarding mining pools.
Needless to say, you are not obligated to stick with any one pool. There are no contracts you will need to sign when joining a pool, so you can try things out with a few pools, and see which one you like best. However, trying out different pools will take you a longer time to reach payouts and you may also incur additional cost for transactions. But you will never know if you never try, so exploring a little in the beginning could yield longer term rewards.
The Best Mining Pools That You Can Join
Slush Pool
Slush Pool started in 2010 when it was called Bitcoin Pooled Mining Server. It has mined over 1.25 million BTC to date. It is the oldest pool that is publicly available. Lately, Slush Pool has become a huge mining pool with a pool hash rate of 5.33 Eh/s.
ViaBTC
ViaBTC is a Chinese-based mining pool, was founded in 2016 and has a global presence, comprising servers in over 130 countries. It is a frontrunner in mining and contributes to over twelve coins that include Bitcoin, Litecoin, Ethereum, and Dash. Beyond a mining pool, ViaBTC provides associated products, like ViaWallet, a cryptocurrency wallet offering, and multiple cryptocurrency exchanges.
AntPool
AntPool is one of the most significant mining pools running today and mines around 11% of every block. It is owned and run by Bitmain, a firm based in China that also produces the Antminer series of ASIC mining devices.
BTC.com
BTC.com is one of the most popular brands in the world of cryptocurrency. This outfit owns the domain Bitcoin.com and BTC.com. Before it started a mining pool in 2016, BTC.com had already gained a reputation for itself for having a creative Bitcoin wallet and its own blockchain explorer. BTC.com runs a common mining pool that is medium sized. Mining servers are found in the EU (Germany), the United States, and China. BTC.com contributes to mining several cryptocurrencies such as Bitcoin, Ethereum, Litecoin, Decred, and Nervous CKB. BTC.com uses the concept of rewarding miners called FPPS (Full Pay Per Share).
FPPS evaluates a quality transaction fee within a specified period, puts it on the block for rewards, and then shares it with miners through PPS (Payment Per Share). Dividing the transaction fees, particularly when they are on the increase, makes mining much more profitable, which may contribute to BTC.com’s popularity.
BTC.com has some additional features that make it popular as well. This includes a designed overclocking software for increasing revenue, Android and iOS pool apps, and a professional customer service team. Windows users can also set up miners easily using the BTC tool and BTC Smart Agent.
KanoPool
KanoPool was founded in 2014. Although it is one of the newest pools out there, it is popular for its low mining fees and its simple configuration process. Registration with KanoPool is also easy, but not compulsory. When setting up your miner, you simply log in using your wallet address as the username to start mining right away. However, the benefit of registration is that you can view more comprehensive statistics about the mining pool.
KanoPool makes payments through the PPLNS, which means Payment Per Last N Shares. ‘N’ here is five times the network difficulty after a block is discovered. The pool fee itself is small, only 0.9% and transaction fees are added to the block reward. This implies that payouts are better in comparison to larger mining pools. However, it takes some time to receive payment. You can discover a more comprehensive explanation of how payouts are coordinated on KanoPool’s website.
