What is Pool Mining & How it Works? How to Find Cryptocurrency Mining Pool?

What is Pool Mining & How it Works? How to Find Cryptocurrency Mining Pool?

in Cryptocurrency, Mining

Mining pools are groups of cooperating miners who agree to share block rewards in proportion to their contributed mining hash power.

A "share" is awarded to members of the Bitcoin mining pool who present a valid proof of work that their Bitcoin miner solved.

Mining pools exist as a way for multiple devices to work together across the internet, pooling their resources in performing complex calculations to generate blocks of data. The mining 'reward' as it's known is then split proportionally amongst each participant depending on the one's hash rate.

Why mining pools? Because there are cases when you can't mine solo. When mining solo, you are doing all the work alone which means that you'll receive the entire block reward, the problem is that mining is also based on a luck factor, which means that if your hash power isn't high enough, you may never see a reward come your way. For the most popular currencies such as Bitcoin and Litecoin, it can take centuries to generate a valid 'block' on your own and make money. With pool mining, however, this variance is eliminated and you receive payments that correspond to the portion of the work that you have done.

What a mining pool does is function as a coordinator for all the pool participants doing:

  1. Taking the pool members hashes
  2. Looking for block rewards
  3. Recording how much work all the participants are doing
  4. Assigning block rewards proportionally to participants

A great analogy to consider would be actual mining. A diamond miner can only sift through 20 square meters of river bed on a daily basis. If the Diamond miner had 200 square meters to sift through it would take him ten days to accomplish this task. If ten miners were working this task would be able to be performed in one day. If there was only one diamond in the entire 200 square meters, it would be found on day one and could be split among all the diamond miners. Instead of the original diamond miner spending ten days to find that one diamond, that someone else may have discovered first. Pooling resources benefit the entire mining pool.

The same thing is true for Bitcoin and cryptocurrency mining. If you have a 1TH machine and the Bitcoin Network total hash power is 1 PetaHash then you have a 1 in 1000 chance of solving the block every ten minutes. You might not even solve it for longer periods, but by joining together with other miners in a pool you can form a syndicate and work in concert to split the returns in relation to what percentage of hash power you contribute to the pool. So if you have 10 TH of a 100 TH mining pool and you win the block reward of 25 Bitcoins – you would receive 10% or 2.5 BTC.

The Pros and Cons

Pros

  1. Allows you to earn some rewards from any computer even with a CPU or Graphics card.
  2. As mining gets more difficult you can still take part helping to spread the wealth to many instead of a few

Cons

  1. Lower rewards in most cases then self-mining
  2. Pool feeds can really add up so do your research to find the most reliable but lowest fee pool a 0.5% can mean the difference between 100,000 coins or 100,500 it does add up over time.

What to mine?  

As I have already mentioned, it's better to mine Bitcoin or Litecoin in a mining pool. However, "merged mining" allows to mine the other currencies which use the same proof of work algorithm. It's the same as entering the same set of numbers into several different lotteries. 

If you don't have special ASIC equipment it will be more efficient for you to mine altcoins, especially currencies based on the scrypt algorithm rather than SHA256. This is because the difficulty of bitcoin calculations is far too high for the processors found in regular PCs. 

In the end, there is a pool called 'Multipool' which will automatically switch your mining hardware between the most profitable altcoin. Multipool updates every 30 minutes, and over time you'll see balance grow in multiple altcoins. If required, the pool does allow you to fix your hardware on just one altcoins too.  

Where to mine? 

For each cryptocurrency there are mining pools. For example, here you can find popular Bitcoin mining pools list and here - Litecoin's ones. 

Besides, there are websites where you can see the largest mining pools charts depending on hash rates. 

Mining pools

Click on the picture to see the details. 

It's worth mentioning that the larger pool the more chances it is not a scam. 

Looking through the charts' details you may have noticed a term "difficulty". 

Simply explained, it's just the complexity of the task that miners need to solve to create the block (the problematic piece of the puzzle to find). This difficulty could change. It depends on the hash rate of the network (the number of miners who mine off this coin).

If there are not many miners, difficulty falls, if there are a lot of miners, the difficulty starts growing, and it becomes harder for a particular miner to find this block.

The difficulty is measured in hashes (usually terahashes - TH), concerning mining, it signifies the unit of work performed. The network hash rate or nethash (number of miners) are measured by hashes per second (TH/s).

Vardiff

Vardiff stands for Variable Difficulty. It is used to regulate the difficulty of the shares you receive to work on. This benefits both low hash rate and high hashrate miners as the difficulty will regulate itself to best fit your hashrate. While some mining pools have Vardiff, others will have multiple ports for different difficulties. If your pool has no Vardiff, you may want to test different ports for different difficulty.

How do rewards work?

For every block mined there is a block reward which is now 12.5 BTC (This again can go down as the mining progress and difficulty increases) and in addition to that there are transaction verification rewards to verify all the transactions in a block. The below is a sample of rewards for ant pool from btc.com: 

how rewards works

Tx Count here is the number of transactions waiting to be confirmed. 

Click here to learn the other terms you don't recognize.

Why do pools use a different difficulty than the blockchain difficulty?

Because the goal is to track work attempted in a verifiable manner. If a pool used a difficulty equal to the block difficulty then only one share would be found per block and it would be found by the miner who solves the block. All rewards would go to the single shareholder and essentially you invented a long complex roundabout way of solo mining.

Contrary to popular belief, mining is not something where there is progress. Each hash has the same probability of being a valid block hash. You could get lucky and find a valid hash with your next hash, or you could not. There is no progress that is made. When you mine on a lower difficulty, the target that your hash must be under is much higher than that of the networks. With enough hashes, someone will eventually find a hash that is lower than the network target, and that hash would also be lower than their pool target. The higher target (thus lower difficulty) is only for tracking who is actually doing work and how much work they are doing so that they can be paid appropriately.

Pool fees

Fees vary according to which model of payment distribution the mining pool is operating and determines which party is assuming the risk – the miners or the mining pool operator. If the mining pool operator is assuming the risk, then the fees are higher, and if the miners assume the risk then fees are lower.

The fees usually range from 0% to 4%. The standard fee for mining pools is usually 1%, so if you spot a pool with a higher fee check its payment method and other features. Sometimes a pool will have a 0% fee. This is very unusual and it most often means that you are dealing with a new pool that has no fee in an effort to attract customers. Some pools, however, actually rely on donations and other methods, so if you find a 0% fee, you'll want to keep an eye on any fee changes.

Pool rewards

Before you choose a mining pool, weigh up how each pool shares out its payments and what fees (if any) it deducts.

There are many schemes by which pools can divide payments most of which concentrate on the amount of 'shares' which a miner has submitted to the pool as 'proof of work'.

Shares are a tricky concept to grasp. Keep two things in mind:

  1. mining is a process of solving cryptographic puzzles
  2. mining has a difficulty level. When a miner 'solves a block' there is a corresponding difficulty level for the solution. Think of it as a measure of quality. If the difficulty rating of the miner's solution is above the difficulty level of the entire currency, it is added to that currency's blockchain and coins are rewarded.

A mining pool sets a difficulty level between 1 and the currency's difficulty. If a miner returns a block which scores a difficulty level between the pool's difficulty level and the currency's difficulty level, the block is recorded as a 'share'. There is no use whatsoever for these share blocks, but they are recorded as proof of work to show that miners are trying to solve blocks. They also indicate how much processing power they are contributing to the pool - the better the hardware, the more shares are generated.

mining pool reward

The most basic version of dividing payments this way is the 'pay per share' (PPS) model. Variations on this put limits on the rate paid per share; for example,

  1. equalized shared maximum pay per share (ESMPPS)
  2. shared maximum pay per share (SMPPS) 
  3. Pools may or may not prioritize payments for how recently miners have submitted shares: for example, recently shared maximum pay per share (RSMPPS).

Over the time, many different payment systems have been developed. Most altcoin pools use the Prop or PPLNS payment system. However, there are several, including:

  1. PROP: The Proportional approach offers a proportional distribution of the reward when a block is found amongst all workers, based off of the number of shares they have each found.
  2. PPLNS: The Pay Per Last N Shares (PPLN) approach is similar to the proportional method, but instead of counting the number of shares in the round, it instead looks at the last N shares, no matter the boundaries of the round.
  3. DGM: The Double Geometric Method (DGM) is a hybrid approach that enables the operator to absorb some of the risks. The operator receives a portion of payouts during short rounds and returns it during longer rounds to normalize payments.
  4. CPPSRB: The Capped Pay Per Share with Recent Backpay uses a Maximum Pay Per Share (MPPS) reward system that will pay Bitcoin miners as much as possible using the income from finding blocks, but will never go bankrupt.
  5. BPM: Bitcoin Pooled mining (BPM), also known as "Slush's pool", uses a system where older shares from the beginning of a block round are given less weight than more recent shares. This reduces the ability to cheat the mining pool system by switching pools during a round.
  6. POT: The Pay on Target (POT) approach is a high variance PPS that pays out in accordance with the difficulty of work returned to the pool by a miner, rather than the difficulty of work done by the pool itself.
  7. SCORE: The SCORE based approach uses a system whereby a proportional reward is distributed and weighed by the time the work was submitted. This process makes later shares worth more than earlier shares and scored by time, thus rewards are calculated in proportion to the scores and not shares submitted.
  8. ELIGIUS: Eligius was designed by Luke Jr., creator of BFGMiner, to incorporate the strengths of PPS and BPM pools, as miners submit proofs-of-work to earn shares and the pool pays out immediately. When the block rewards are distributed, they are divided equally among all shares since the last valid block and the shares contributed to stale blocks are cycled into the next block's shares. Rewards are only paid out if a miner earns at least. 67108864 and if the amount owed is less than that it will be rolled over to the next block until the limit is achieved. However, if a Bitcoin miner does not submit a share for over a period of a week, then the pool will send any remaining balance, regardless of its size.
  9. Triplemining: Triplemining brings together medium-sized pools with no fees and redistributes 1% of every block found, which allows your share to grow faster than any other Bitcoin mining pool approach. The administrators of these Bitcoin mining pools use some of the Bitcoins generated when a block is found to add to a jackpot that is triggered and paid out to the member of the pool who found the block. In this way, everyone in the pool has a better chance to make additional Bitcoins, regardless of their processing power.

Starting to mine with a pool

Having decided which currency to mine and which pool you'll work for, it's time to get started.

  1. create an account on the pool's website, which is just like signing up for any other web service.
  2. create a 'worker'. You can create multiple workers for each piece of mining hardware you'll use. The default settings on most pools are for workers to be assigned a number as their name, and 'x' as their password, but you can change these to whatever you like.

 Conclusion

Mining pools have been very profitable for years. It is challenging to discover block rewards using your miners without being connected to a pool. Therefore, pooled mining has increased in popularity significantly in the last few years.

Mining pools are not only a great idea to be a part of, but they help alleviate the stress associated with the major fluctuations that can take place on a daily basis on the crypto space. By joining a mining pool, the individual greatly increases their chances of discovering block rewards and making mining a profitable venture. However, it's still up to you what kind of mining to choose. Good luck! 

 


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