What Is a Mining Pool?
Mining pools amplify the odds of earning cryptocurrency by uniting miners to solve blockchain problems. This collective approach accelerates the block discovery process, which alone demands substantial computational power and resources.
Mining can take years to be profitable due to the costs of buying, running, cooling, and maintaining machines. Joining a mining pool is an affordable way to boost the chances of earning a cryptocurrency reward.
KEY TAKEAWAYS
Mining pools combine the computational power of multiple cryptocurrency miners, increasing their chances of receiving a reward.
Participants in a mining pool receive payouts based on their contributed processing power, using various payout schemes like PPS, FPPS, PPS+, and PPLNS.
Proportional and peer-to-peer are two common types of mining pools, each offering different methods for distributing rewards and mitigating risks.
Mining pools allow individuals to share the high costs of hardware and electricity, making mining more accessible and potentially profitable.
Despite increasing centralization in the mining industry, mining pools remain essential for smaller miners to earn rewards and support the blockchain.
Understanding How Mining Pools Operate
Individually, participants in a mining pool contribute their processing power toward the effort of finding a block. If the pool earns a reward, it is shared among the participants.
Rewards are typically divided based on each participant's processing power contribution, known as shares. Usually, the pool's software calculates payouts and sends them to users' wallets.
IMPORTANT
Rewards are usually split among the miners based on the pool's payout scheme. Some schemes are pay per share (PPS), pay per last N shares (PPLNS), and pay per share plus (PPS+). Each pays based on the share of work contributed, with different payout calculations for each type.
Common Mining Pool Protocols
Not all cryptocurrency mining pools function in the same way. However, there are a few common protocols that govern many of the most popular mining pools.
Proportional mining pools are among the most common. In this type of pool, miners contributing to the pool's processing power send shares of work to the pool until the point at which the pool succeeds in finding a block. Miners then receive rewards proportional to the number of shares they submitted for that block.
Peer-to-peer mining pools aim to prevent the pool structure from becoming centralized. As such, they integrate a separate blockchain related to the pool itself and are designed to prevent the pool operators from cheating and the pool itself from failing due to a single central issue.
Popular Mining Pool Payout Schemes
There have been many different types of payout schemes tried by many pools in the past, but the majority of pools now use one of four:
Pay-Per-Share (PPS)
Full-Pay-Per-Share (FPPS)
Pay-Per-Share-Plus (PPS+)
Pay-Per-Last-N-Shares (PPLNS)
PPS is a fairly simple payout method—you're paid for the shares or blocks you contribute to the pool.
PPS+ and FPPS are generally the same thing—you receive a proportional amount of the reward based on the quality of the shares you provided, and the pool pays a transaction fee reward.
PPLNS might be slightly more confusing—when a block is "found," the pool software locates the last blocks you contributed after the last and new winning blocks were found. The number of trial blocks (or shares) you contributed between that time dictates your payout. This usually means you'll need to stay connected to the pool until a block is found. If you disconnect between blocks, you'll likely lose your contributions and payout.
Advantages of Joining a Mining Pool
Individual mining success means full reward ownership, but the low odds make it hard due to high power and resource needs.
Cryptocurrencies have become harder to mine, and competition for them has grown a lot. Mining pools give everyone a fighting chance against (or a chance to work with) those who have built vast, ultra-expensive mining farms.
Mining pools reduce hardware and electricity costs for participants, boosting chances to cover expenses and profit.
Potential Drawbacks of Using a Mining Pool
Joining a mining pool means less autonomy in the mining process. They are typically bound by terms set by the pool itself, which may dictate how the mining process is approached. They are also required to divide up any potential rewards, meaning that the share of earnings is lower for an individual participating in a pool.
A small number of mining pools—AntPool, Foundry, ViaBTC, F2Pool, and Binance Pool—dominate the Bitcoin mining process, according to Blockchain.com.1 Although many pools try to be decentralized, these groups consolidate much of the Bitcoin blockchain.
Some cryptocurrency supporters believe this centralization opposes the decentralized nature Bitcoin and other cryptocurrencies aim for. However, it has become necessary for users to participate in pools if they want to receive rewards and help the blockchain function.
Which Is the Best Mining Pool?
The best mining pool is the one that uses a payout scheme you prefer and which is transparent about how it operates. In general, the bigger and faster the pool is, the more you are likely to receive—to a point. There is likely a point where pools can be too large to be beneficial for individual miners.
What Is a Mining Pool and How Does It Work?
A mining pool is a network of cryptocurrency miners that combine their processing power to mine crypto. You connect your client to the pool, the pool assigns work to you based on its criteria, and you receive payouts based on the work your mining rig submits to the pool.
Do Mining Pools Make Money?
Mining pools can make money if they charge for their services, which some have started doing.
The Bottom Line
Cryptocurrency mining has evolved into a process largely dominated by major mining pools, which combine computational power to increase the probability of earning rewards. For individual miners with less computational capacity, joining a mining pool is often the best strategy to effectively earn cryptocurrency, as solo mining typically requires significant resources and expertise. Participating in a mining pool offers a chance to reduce financial barriers and improve success rates by sharing resources and rewards collectively. Before joining, assess the payout schemes and terms of different pools to ensure they align with your financial goals and technical capabilities.
