Bitcoin Mining Pools
Definition of ‘Bitcoin Mining Pools’ - In the context of cryptocurrency mining, a mining pool is the pooling of resources by miners, who share their processing power over a network, to split the reward equally, according to the amount of work they contributed to the probability of finding a block.
What is a Bitcoin mining pool?
A Bitcoin mining pool is a network of miners who work collaboratively to verify transactions and complete blocks on the Bitcoin platform.
This makes mining Bitcoin faster and perhaps more cost effective than mining it as an individual. When blocks are completed successfully, the rewards are shared equitably to each member of the pool. The coordinator is expected to take an amount off the reward before onward distribution is made to other members of the pool.
Distribution is made often based on each individual's contribution to the mining campaign.
The contributions are measured by the amount of hashes produced per second by the miner, what is referred to as hash power or hash rate.
How do Bitcoin mining pools work?
As a network of connected computers working together to complete a block, tasks need to be performed by individual miners till a block is completed.
When a miner finishes up the task given, they can request for more tasks over and over again.
To ensure that individual miners are given tasks that are appropriate for them, the capacity of their computing devices are evaluated as it determines the type and volume of tasks allocated to them.
Sometimes however, miners are allowed to choose the amount of tasks they want to perform. This gives them the liberty to work at their own pace, but measures are taken to avoid infringing on tasks already picked up by other miners in the same pool.
What are the advantages of mining pools?
Mining a cryptocurrency of Bitcoin's status requires some level of sophistication in hardware and software. Sadly, not many miners have access to such devices.
Mining pools give such miners the opportunity to still make profits off Bitcoin through collaborative work.
Also, with average computers, it would take most miners up to decades to mine one Bitcoin. However, joining pools will increase the chances of earning coins relatively quicker. With mining pools, there's consistency in completing blocks so you can be hopeful of steady payouts.
Not forgetting the reduction in cost of operation and environmental impact miners enjoy from joining a pool.
No doubt, mining Bitcoin takes a lot of electricity such that if miners were to work solo, they would have to pay heavily for power usage. However, pool mining takes the bulk of that off the shoulder of individual miners and shares it across every miner in the pool.
Are there any disadvantages to Bitcoin mining pools?
Some miners prefer the solo path to mining Bitcoin for certain reasons, despite the huge benefits of joining a mining pool. Could there be disadvantages discouraging them?
When you join a mining pool you would have to relinquish some privileges such as bigger rewards. For every transaction verified, there's a fixed amount of Bitcoin earned; 6.25BTC which is shared among miners in the pool in question.
Apparently, you'd have lesser rewards than when you mine solo.
Another disadvantage is the maintenance levy each member of the mining pool has to pay. Sometimes it's a considerably small amount to keep the programming system running and it is usually charged from rewards.
Also, you have to be cautious about joining trustworthy mining pools because you would be at the mercy of the administrators.
They decide what your reward would be and choose to hold on to it. With mining pools, you have less control over how you mine and your rewards from it.
What are the popular reward sharing methods used by mining pools?
There are different reward sharing methods used by mining pools. Every pool uses that which works best for them or that which the coordinators prefer. Here are a number of them.
- Solo mining: this method appears similar to individualistic mining but it isn't the same. In this method, rewards are not shared between other members of the mining pool. Whoever finds the block goes home with all the rewards.
- Pay-per-share: this method places the bulk of the risk on the coordinators because payments are made from existing balances. This method pays miners based on their contribution to the probability of finding a block so even before finding a block, there's a reward for a miner. The worth of the share is equal to the value of the hash attempt's propensity to find the block.
- Proportional method: mining pools using this method distributes tasks or shares to miners until the pool successfully finds a block. Rewards can only be distributed after the mining round is complete, that is, when a block is found. There's a formula for reward sharing using the proportional method. It can be represented thus; R = _B× (n/N). Where R _means reward, _n _means shares allocated to a miner, B means block after levy has been deducted and _N _means the total number of tasks or shares in that round.
- Pay-per-last-N-shares method: this is similar to the proportional method but with a slight difference. Recall that in the proportional method, the number of the miner's shares is divided by the number of the total shares but in this method, his share is divided by the last set of N shares that found the block. So, if fewer shares went round when the block was found, the reward will be bigger. If otherwise, the reward would be smaller.
- Peer-to-Peer method: this is cost intensive but it removes the risk of being unfairly paid by a coordinator or the chance that the server becomes the single source of failure. This method has the duty of the pool server decentralized which means miners would have to function with the use of a side blockchain. In this case, it is known as "share chain". Miners are given shares per half a minute till the share gets to the target necessary to complete a block. When this happens, it is merged with the Bitcoin platform and the miners receive their reward. The worth of the reward depends on how many shares were submitted by the miner before reaching the target block. This method is cost-intensive because individual miners have to own complete Bitcoin nodes. They will cover the cost of connection bandwidth and computer hardware themselves.
When did pool mining start?
In the past, miners never had to pool resources to earn rewards.
However, as the computing power required to mine Bitcoin increased, it became rather difficult for solo miners to thrive. The only feasible option was to form pools.
In 2010, Slushpool came into the scene as the first mining pool.
As revealed by Blockchain.com, the amount of hash rate engaged on the Bitcoin network rose by a factor of 100 million from 2011 to 2018. Interestingly, this number has increased in multiple folds ever since.
What this means is that, the probability of solo miners finding blocks and earning rewards is getting slimmer by the day.
Not to mention the inefficient nature of GPU systems which were used in the past. Ever since the emergence of mining pools and their considerable success from 2010, they remain the most feasible way to get rewards from Bitcoin mining.
What are the most popular mining pools?
Here is a list of the most popular Bitcoin mining pools at the moment.
- Antpool mines an estimated 16% of all Bitcoin blocks. They are based in the People's Republic of China and are owned by BitMain.
- ViaBTC broke into the market recently but their strategy of targeting China based miners pays off as they mine about 12% of all Bitcoin blocks. They are also based in China.
- F2Pool is also located in China and is responsible for the mining of about 15% of all blocks.
- Binance Pool is arguably one of the fastest growing pools at the moment. Accentuated by their ownership of one of world's largest cryptocurrency exchanges called 'Binance', Binance Pool pulls about 10% of all Bitcoin blocks. Owned by Maltese investors, they hope to stretch their tentacles from being just an exchange into a mining powerhouse.
- Poolin functions as a public pool, and they are responsible for an estimated 8% of all blocks mined. Their location in China didn't hinder them from having a website fully operational in the English language.
- Foundry USA (as can be deduced from the name) is located in the United States. German owners, Foundry Digital, control it and they mine about 14% of all blocks.
- Slush Pool was the first pool ever to grace Bitcoin mining. However, they boast of only about 5% contribution to all Bitcoin blocks. Though it is not one of the largest pools at the moment, it retains a reputable pool for Bitcoin mining.
Which pool is the best for Bitcoin mining?
There are a number of profitable mining pools available. Choosing a mining pool to join is important because you will have to either endure or enjoy the system of leadership used by its coordinators. It is advisable that you join a pool that enjoys considerable success in hash rate and uses a reward system that is suitable for you.
How often do mining pools payout?
For most top mining pools, payout comes daily. A mining pool may decide to payout if the miner's reward reaches a certain threshold, while others may payout your reward per day no matter how little it is. It is a matter of different strokes for different folks.