Mining Pool 101

With the increasing complexity and cost of mining cryptocurrencies like Bitcoin, mining pools have emerged as a crucial mechanism for enabling smaller-scale miners to participate in the network. Mining pools allow individual miners to combine their computational resources, dramatically increasing their chances of successfully validating new blocks and earning rewards.

The current top Bitcoin mining pools include Foundry USA, AntPool, and ViaBTC, among others.

How mining pools work

• Joining forces: When you join a mining pool, you contribute your computing power (i.e., hashrate) to the group and collectively solve complex cryptographic puzzles
• Solving blocks: The pool works together to solve complex cryptographic puzzles
• Block reward distribution: When the pool successfully mines a block, the pool receives the rewards, which are then distributed among all members based on their contributed hash power

Different types of mining pools

1. Pay-Per-Share (PPS): Participants receive a fixed amount for every share they submit. Participants are rewarded, regardless of whether the pool solves a block
2. Full Pay-Per-Share (FPPS): Similar to PPS, but FPPS participants also get a share of transaction fees
3. Pay-Per-Last-N-Shares (PPLNS): Miners are rewarded when the pool successfully mines a block. Participants are paid out depending on the number of shares submitted within a specific time window and the "N" number, which varies depending on the pool

Key features of mining pools

• Increased chances of success: The combined hashrate of a pool significantly increases the likelihood of successfully solving a complex cryptographic puzzle as compared to solo mining
• Lower costs and entry barrier: By pooling resources, miners can share the costs of electricity and hardware in addition to extensive technical knowledge, making it easier and more accessible for individuals to participate in mining‍
• Consistent rewards: Mining pools aggregate the computing power of multiple miners, which should allow the pool to find new blocks on the blockchain more frequently. This can provide miners within the pool with a more consistent and predictable flow of rewards, rather than the uneven and unpredictable payouts that individual miners may experience when mining solo