What Is a Mining Pool and How Does It Work?
A mining pool is a network that combines the computing skills of a group of crypto miners to improve their chances of successfully mining for crypto or finding a block. A successful pool is rewarded by way of the cryptocurrency involved in the mining. Each participant’s processing power or labor is what is used to divide up the rewards fairly among the participants. This is often required to be proven by each participant in order to receive the rewards.
The duration of mining or the ‘mining duration’ is the length of time in between each block that is mined by the pool. So, each round begins when the pool is able to add a block to the blockchain and will end when another block is added to the chain. This duration could be as long as a few hours or as short as just a few minutes, depending on the size of the pool and how lucky they are. No matter your hardware or the cryptocurrency you choose, there is a mining pool out there for you.
If you are a small operator looking to consistently earn mining rewards, pool mining is for sure the best option for you. This is true whether you have just a standard desktop computer with a CPU and GPU or you have all the trimmings such as a graphical processing unit (GPU) mining setup and cryptocurrency application-specific integrated circuit (ASIC) hardware.
Various factors are calculated statistically, such as your hashing power, the overall network hash rate, how quickly blocks are being mined, the rewards these blocks are offering, and so on. These values are then processed by calculators which give responses that are based purely on statistical probability. This will give an estimation of the amount of money you can make over a given amount of time, although they are not always accurate.
If you’re a small business with a small amount of processing power, you may find that solo mining isn’t a realistic option. Some of these calculators may tell you that your first block would be mined up to ten years away given the statistics. So, to cash in on bitcoin mining, a pool is the best choice.
Mining pools work like a mutual fund for cryptocurrency mining and are created with users in mind, avoiding many of the technical difficulties and complexities that can be found in the typical mining process. Each miner will benefit from mining pools, and the pool as a whole will benefit from the miners’ hash rates.
Mining Pools Payout Schemes
Different crypto mining pools will work in different ways. However, most of the main ones will follow one of these standard sets of procedures:
- PROP – The proportional (PROP) technique works by distributing rewards proportionally between all of the workers, based on each of their individual shares.
- PPS – Pay-Per-Share (PPS) gives miners an immediate and guaranteed payout for every share by withdrawing their shares from their current balance.
- PPLNS – Pay Per Last N Shares (PPLN) works by paying miners a 0% portion of their total contributed shares. This is similar to a proportional approach, but it doesn’t work per round, instead, it looks at the previous N shares.
- SMPPS – Shared Maximum Pay Per Share (SMPPS) works in a similar way to the pay per share (PPS) method, however, this one features a restriction where it will not pay out any more than the mining pool has earned.
- ESMPPS – Equalized Shared Maximum Pay Per Share (ESMPPS) works in a similar way to the Shared Maximum Pay Per Share (SMPPS) method, but instead this method will pay each of the miners fairly and equally.
Advantages of a Mining Pool
Although solo mining will reward any successful individual with complete ownership of any reward, solo mining does not come with high chances of success as crypto mining requires a lot of resources and processing power. Crypto mining for the solo miner is often found to be a losing game.
Cryptocurrency has also become increasingly difficult to mine as its popularity has grown, and the price of the technology that is required to be successful has increased so much that it often renders even a successful solo miner without a profit.
A mining pool, however, requires each individual miner to have less processing power and less hardware, which increases the profitability of crypto mining for each member. Working with other people also increases the chances of miners finding and cashing in on a mining reward.
The main advantages of pool crypto mining are a more consistent income, lower expenses and the possibility of a higher income over time.
Disadvantages of a Mining Pool
Joining a mining pool leaves each individual with less control over the whole process. Members are usually under the constraints of the pool they are working in terms of how the mining is carried out. Working in a mining pool also means that each member is required to share and distribute any potential earnings, which could lead to some individual members of the pool receiving a smaller profit percentage than they might expect.
The main disadvantages of crypto pool mining are the sharing of rewards between pool members, which can reduce each individual’s income. The reward structure in a mining pool can be complicated, and pools are at risk of facing interruptions at any given time.