Mining Pools - An Economic way to mine Crypto

  • Ashesh Anand
  • Sep 25, 2021
  • Cryptocurrency
Mining Pools - An Economic way to mine Crypto title banner

What Is a Mining Pool and How Does It Work?


A mining pool is a collective of cryptocurrency miners that pool their computing capabilities over a network in order to increase the chances of finding a block or otherwise successfully mining for cryptocurrency.


Participants in a mining pool donate their processing power to the effort of discovering a block on an individual basis. If the pool is successful in its efforts, it is rewarded, usually in the form of the cryptocurrency involved. 


The proportion of each individual's processing capacity or labor compared to the total group is generally used to share rewards among those who contributed. Individual miners may be required to provide proof of labor in order to get their rewards in some instances.


(Related: Future of CryptoCurrency )


The mining round or mining duration is the time between blocks mined by the pool in most cases. That is, a round starts when the pool wins the right to add a block to the blockchain and ends when it adds another block to the chain. 


Depending on the pool size and the pool's luck, the round might last anywhere from a few minutes to many hours. There is a mining pool for you, regardless of the hardware you intend to use or the coin you choose.


Pool mining is the best method of consistently earning mining rewards for small operators, whether you have cryptocurrency application-specific integrated circuit (ASIC) hardware, a graphical processing unit (GPU) mining rig, or just a typical desktop computer with both a central processing unit (CPU) and GPU onboard.


These calculators simply do a statistical calculation based on a variety of factors, including the total network hash rate (the sum of all the computers mining that cryptocurrency), your degree of hashing power, the frequency with which blocks are mined, the block reward, and so on. 


All of these values are input into the calculators, which then provide responses based on pure statistical probability. They predict how much money you'll make over a certain length of time, but your actual earnings may differ. 


You could mine your first block right away, or you might mine it twice as fast as planned.


These calculators might be a shock for most small businesses. For example, you could learn that mining bitcoin with your slow processor would result in your first block being mined 10 years from now, according to statistics. 


To put it another way, solo mining isn't a viable option for you. If you truly want to mine bitcoin in this situation, you'll need to join a pool.


Mining pools are also designed to be user-friendly, removing many of the technical intricacies and headaches from the mining process. Individual miners benefit from mining pools, and pools benefit from miners' hash rate.


Anyone interested in mining bitcoin for a profit has two options: go solo with their own specialized equipment or join a mining pool, where several miners and their devices pool their hashing power. 


Attaching six mining devices, each of which delivers 335 mega hashes per second (MH/s), for example, can create a total of 2 gigahashes of mining power, resulting in quicker hash function processing.

Watch this video on Mining Pools to learn more about the concept:


Factors to keep in mind while choosing an Ideal Mining Pool


1. Pool mining ideology


When choosing a pool to offer your hash rate and mining power to, one factor to consider is pool ideology. Ideology is a difficult notion to grasp, especially when corporations are involved, which is exactly what mining pool operators are: for-profit companies.


Some are beneficent performers, while others have hidden goals beyond monetary gain. Historically, certain pools have sought to destabilize the coins they support. 


(Also Read: Most Stable Cryptocurrencies in 2022 )


Mining pools that mine empty blocks in an attempt to manipulate transaction fee incentives, bottleneck transaction throughput, and promote alternative systems are examples of this.


Other mining pools have used their hash rate and clout to prevent system upgrades or to initiate and spread forks of the blockchain they're mining. There is no one-size-fits-all or simple method for determining mining pool philosophy.


Community sentiment and previous actions, on the other hand, are frequently helpful indicators for determining if a mining pool is operating in a way that benefits the larger ecosystem. 


Staying up to speed on bitcoin news and perusing internet forums are the greatest ways to sort through the mining pool philosophy.

Image depicts the dashboard screen of a Pool mining website i.e Antpool.

Antpool Pool Mining ( Source )

2. Pool mining reputation


Pool reputation is another essential consideration when choosing a pool. Some mining pools employ schemes to defraud subscribers by stealing their hash rate or mining earnings. 


These pools do not endure long since cryptocurrency news travels quickly and pool miners' switching fees are minimal, making it easy for users to abandon pools that scam miners.


Despite this, there have been several instances of fraud involving mining pools and cloud mining services. Bitconnect, Power Mining Pool, and MiningMax are among the most well-known in the past.


The ancient adage "If anything seems too good to be true, it probably is!" may be the greatest method to spot a scam. (Bitconnect wasn't a mining pool in the strictest sense; it was a business that guaranteed a return on a bitcoin investment.)


( Also Read: Blockchain Technology: Components and Applications )


Other obvious signs of a mining pool or cloud mining hoax include, but are not limited to:


  1. Guaranteed profits: Guaranteed profit pools or cloud services are marketing more than they can give. You know the old adage: if anything sounds too good to be true, it probably is.


  1. Beware of anonymous perpetrators: Pools or mining services owned and run by anonymous companies or persons might be sketchy at times.


  1. Multi Level marketing schemes: Some mining pools or cloud mining services reward individuals who attract others to the scheme with higher payouts. 


This does not always imply that the business is a scam, but if MLM (also known as pyramid schemes) is involved, conduct your homework thoroughly. (While many internet businesses provide recruiting bonuses, MLM takes it to a whole new level.) 


  1. No infrastructure that can be audited by the public: Pools or cloud mining services that aren't transparent — for example, those that don't post videos of their mining operations or don't disclose hash rate statistics — might be frauds.


  1. No evidence of hash rate: Some pools provide verifiable hash rate statistics, which can't be faked and can be independently confirmed by any potential miner. 


Some pools, on the other hand, just post their hash rate numbers without any supporting proof, expecting that you will believe them. 


  1. Unlimited hash power purchases: If a cloud mining business provides absurdly huge quantities of hash power for purchase, it's possible that they're only attempting to keep your bitcoin for themselves rather than providing any long-term services. 


Be careful of services that offer large bundles; it's possible that they're promising more than they can provide.


In the Crypto mining sector, reputation is difficult to earn but very simple to lose. As a result, many of today's pool owners who have amassed significant hash rate percentages on the cryptocurrency networks they support are not frauds. 


Enterprising miners would have already migrated to a better pool if they were frauds or illegal actors in the sector.

The image depicts the statistics page at Slush Pool, showing information from the current mining round.

Slush Pool ( source )

( Also Read: Future of CryptoCurrency )


Mining Pools Payout Schemes

Not all crypto mining pools work in the same way. Many of the most prominent mining pools, on the other hand, follow a set of standard procedures.


  • PPS- The Pay-per-Share (PPS) technique provides for an immediate, guaranteed payout for each share depending on the miner's accepted shares. The miners can get their money right away by withdrawing it from their existing balance.


  • PROP- The proportional (PROP) technique distributes the reward proportionally across all workers, based on the number of shares each of them has.


  • SMPPS- The Shared Maximum Pay Per Share (SMPPS) technique is similar to the pay-per-share (PPS) approach, but it has a restriction of not paying more than the mining pool's earnings.


  • ESMPPS- The Equalized Shared Maximum Pay Per Share (ESMPPS) technique is similar to the Shared Maximum Pay Per Share (SMPPS) approach, but it pays all miners equally and fairly.


  • PPLNS- The Pay Per Last N Shares (PPLN) mechanism, which pays miners a 0 percent portion of the total shares they contribute. PPLN is similar to a proportionate approach, except that instead of calculating the number of shares in the round, it examines the last N shares.


( Also Read: Centralized and Decentralized CryptoCurrency Exchanges )



Advantages of a Mining Pool


While individual mining success provides total ownership of the prize, the chances of success are extremely slim due to the high power and resource needs. Individuals typically find mining to be a losing proposition. 


Many cryptocurrencies have gotten more difficult to mine in recent years as their popularity has increased, and the expenses of the pricey technology required to be a competitive miner, as well as power, frequently outweigh the potential profits.


Mining pools need less hardware and power from each individual member, increasing the likelihood of profitability. 


While an individual miner may have a slim probability of locating a block and earning a mining reward, collaborating with others greatly increases the chances of success.


The major advantages are:


  • When compared to solo mining, income is more consistent.


  • Because of the sharing, mining expenses have decreased.


  • Possibility of producing greater revenue over time.



The chart shows how the current balance of power across the Bitcoin mining space plays out. Each of those pools usually consists of thousands of individual miners from across the world. The exact number of individual computers contributing to the network is hard to tell.

Balance of Power across Bitcoin mining among different Mining Pools (source)

Disadvantages of Mining Pool


Individuals that join a mining pool relinquish some of their control over the mining process. They are usually constrained by the pool's conditions, which may regulate how the mining operation is carried out. 


They must also distribute any possible benefits, implying that one individual participating in a pool would receive a smaller percentage of the profit.


Hence the main disadvantages are:


  • Interruptions might happen at any time.


  • Because the rewards are shared, your income is reduced.


  • The reward structure is somewhat unfavorable and complicated.


A limited handful of mining pools, such as AntPool, Poolin, and F2Pool, dominate the bitcoin mining process. 


Despite the fact that many pools strive to be decentralized, these organizations concentrate most of the control over the bitcoin network. 


The presence of a small number of powerful mining pools, according to some cryptocurrency proponents, goes against the decentralized structure inherent in bitcoin and other cryptocurrencies.

Read this document on “Bitcoin Mining Pools



Final Words


The mining pool software's primary function is to send mining hardware work to the bitcoin network, receive complete work from other miners on the network, and relay data back to the blockchain. It's also used to link bitcoin miners to the blockchain and, if you're a member of one, to your Bitcoin mining pool.


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