What is a mining pool?

Mining pools were designed to allow individual miners to combine their resources in order to enhance their opportunities in obtaining blocks and earning BTC. Miners need to merge their contributed mining power and then share block rewards.

There are different pools to choose from for miners. They vary in fees, payment methods, and size. Usually, larger pools will offer more frequent payments. However, smaller pools will have greater returns. The unfortunate thing about mining pools is that they are more rewarding to the owner of the pool versus the average miner. However, miners can choose to redirect their hashing power to another mining pool at any time.

What happens in a Bitcoin mining pool?

Miners need to solve a mathematical problem in order to gain new Bitcoins. The miner that solves it first will be able to add the most recent block to the blockchain and update the ledger containing Bitcoin transactions. To regulate the surge of new Bitcoins and prevent inflation, a system called ‘mining difficulty’ has been designed. This means that the more miners a pool has, the harder it is to solve the mathematical problem.

As Bitcoin grew in popularity, home mining became obsolete since it’s now much harder to mine Bitcoin. It requires a large initial investment, such as purchasing the appropriate hardware and then, it will heavily affect your electricity bill as mining requires a lot of power.

This is why mining pools were created – they allowed miners to pool their resources together and increase the computing power, which essentially offers you a better opportunity to claim the mining reward. Miners are much more likely to solve a problem this way rather than alone. Miners will split their rewards proportionally, based on their contributed hashing power. The owner of the pool will normally charge a fee, too.

How do you pick a mining pool?

You should pick your pool based on your goals and ambitions since different factors work best for different miners.

Reliability and security: It’s essential to pick a reputable and trustworthy pool. Joining a newer pool increases your chances of getting scammed and losing your funds, but a more established pool offers stability. Read a few online reviews on mining pools available before picking the right one for you.

Pool size:  Larger pools will usually offer more frequent payments, although they will be smaller since there are more members. The opposite will happen with smaller pools: fewer participants, so bigger payouts that are less frequent.

Fees and payouts: Many pools charge a commission, up to 4%, but some are free. Check this in advance before joining one. Pay close attention to the regularity of the payouts, as this will help you establish what kind of pool is most suitable for you.

If you are interested to know more about the mining process, please our special post.

How do mining pools distribute rewards?

There are various methods that miners can pick in order to receive payouts for their efforts. Mining pools use ‘shares,’ which are units that allow pool owners to calculate individual miner’s contribution to the pool, which is their hashing effort. Miners will receive shares based on that, and shares will be invisible since they are only used in the pools internally.

Pay-per-Share (PPS) – In a PPS scheme, miners will receive shares at any point in the hashing process, regardless if a block was solved or not.  The shares’ rate is fixed, and pool owners will pay miners themselves. This kind of payment method mitigates risk and guarantees regular payouts; however, such pools usually have high fees.

Proportional – Miners are paid proportionally, based on the hashing power they have and the longer they mined a block. Miners will be paid when the pool is found, and the payment they earn will be divided by the total number of miners, which is this method’s downside. The more participants there are, the less are the payouts.

Pay Per Last & Shares (PPLNS) – Miners will only get paid for the shares they received during a certain window which ends with solving a block. Shares that are received during this window will not be rewarded.

Score-based – Miners are rewarded based on the time they spend mining as well as their hashing power, which are calculated into something called a scoring hash rate score. This means that the longer they stay in a pool, the higher their payout will be. Miners are rewarded when the block is discovered.

Final thoughts

If you’re looking to start mining Bitcoin, joining a mining pool could be your best bet. Not only will it prevent you from spending large amounts on gear and utility bills, but it can also help you gain more experience and confidence when mining.  Ideally, as a beginner, you should look at joining a more established pool to start off – you can always move to a smaller pool with lower fees after you familiarize yourself better with the world of mining.