How mining pools work?

By admin  MINING December 07, 2017
In the how to set up your mining rig post, we demystified the setup process and broke it down into simple steps. Once you’re done with assembling the hardware and installing the software, you’ll have to connect to a mining pool to mine efficiently. Let’s understand how mining pools work

 

What is pool mining and why was it invented in the first place?

 

Back in the day, when there weren’t many miners and the network complexity wasn’t high enough, people would mine solo and still manage to make good profits. Gradually, as the more and more people got into the mining game, the network complexity shot through the roof. Now, systems which were earning handsome rewards solo would take significantly more time to generate a block. In order to tackle this problem and make it possible for smaller players to make profits, pool mining was invented.
Pool mining is the process of pooling the mining resources together and sharing the hashing power while splitting the block reward equally on the basis of shares contributed by each miner.
A share is nothing but a hash which is much smaller than the target difficulty. Every hash generated has one in 4 billion ( 2^32 times ) chance of being a valid share. All these shares are of no inherent value except the hash with the value that solves the block. Shares are just a means of providing the pool with a valid proof of work and enable the pool to reward the miners accordingly
Think of generating the right hash as taking part in a lottery pool. If you go solo, your odds of winning are very low but you get the entire reward. If you pool your resources, your chances of solving a block and winning rewards increases but you are obliged to share it with the pool.
If you were thinking of diving in solo, know that with the mining complexity going through the roof, it has become nearly impossible for the soloist to make profit mining unless they own farms full of ASIC machines in Ireland.
Now that you’re clear about the fact that you no longer have a choice to mine solo, let’s have a look at your options:

 

1. Join a pool and mine a single cryptocurrency.
2. Join a pool and dual mine – which means you mine two cryptocurrencies together
3. Join Mutipools which constantly switch between altcoins depending on which is most profitable to mine at that moment. To ensure that you don’t need to go through the hassle of setting up different wallet addresses for different coins, most Multipools now automatically exchange the mined coin to a predetermined mainstream coin. Using Multipools, you mine the most profitable coin and convert it into a predetermined coin which results in you making more of the predetermined coin than you usually would have made.

 

What are the different types of pool payment methods?

 

One of the most crucial factors you will have to consider before joining a pool is the pool payment method. Let’s have a look at the two most commonly used methods by pools:
1. Pay Per Share (PPS)

 

 The PPS payment method is pretty much self-explanatory. For every share submitted to the pool, you are rewarded a certain amount of coins. The PPS model has been adopted by pools like AntPool, BTCC, and F2Pool to name a few.
2. Pay Per Last N Share ( PPLNS )

 

In PPLNS model, the pool rewards miners on the basis of the last N shares instead of being rewarded based on the number of shares in the current round. Mining pools like Antpool, BW Mining, Ghash and MergeMining follow the PPLNS structure.
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