Table of Contents
Cryptocurrency mining is a process through which cryptocurrencies like bitcoins enter global circulation on a blockchain network. A blockchain is a decentralized digital ledger that contains records of all crypto transactions that occur on it. Decentralization makes blockchains free of regulatory bodies like a bank or the government, which means there aren’t any central authorities to supervise them.
Crypto mining requires specialized resources, energy and advanced computational power. Miners use these resources to solve complex mathematical problems to mine new blocks. The first miner to solve the problem receives mining rewards in the form of cryptocurrency before the cycle repeats.
Mining is an essential aspect of a blockchain’s functionality as it allows miners to validate cryptocurrency transactions before they’re added to the blockchain for public use. It also enables miners to earn cryptocurrency without paying for mining participation or access to mine new blocks.
Mining is a costly affair that involves sophisticated computer hardware, technical know-how, and large amounts of energy-intensive power consumption. Some miners have mining farms with thousands of computers linked to a mainframe that powers the entire system. More resources increase a miner’s chances of solving a mathematical problem and receiving the next block as a reward.
However, as more large miners pop up, mining is becoming less accessible to everyone. Solo miners often fall short against miners and corporations with huge mining rigs and endless resources. As a result, those without such facilities have to look elsewhere to remain competitive in the mining space. Fortunately, mining pools allow smaller miners to partake in crypto mining and compete against larger organizations without breaking the bank.
But what are mining pools? Before you start looking for a mining pool to join, it’s essential to understand the various types of mining pools and how they work.
What is a mining pool?
Mining pools are groups of crypto miners who work together to generate new blocks. The mining pools divide the payouts according to each participant’s contribution. Each mining pool has a pool manager or pool coordinator. The miners must pay the pool manager a small pool fee to participate.
Mining pool contributions are represented by each member’s hash rate, which is the number of attempts a participant needs to find a new block. This metric is measured in hash power or hashes per second. Each time participants discover a new block, they pay the pool manager a block reward. After deducting a nominal charge, the manager compensates each participant according to their contribution.
Mining pools benefit smaller miners because they allow them to join a group where multiple participants combine their resources to purchase mining equipment instead of relying on a single individual. The more resources the group pools in, the higher the chances of them solving the math problem to mine a new block.
Mining pools allow users to pool their resources to compete against major players, which previously was a task. Additionally, it implies that each participant in the mining pool receives a proportionate profit share.
How do mining pools work?
Mining pools operate on the back of three main components-cooperative work protocol, cooperative mining service, and mining software-which combine to increase the cooperation and efficiency among all participants in a mining pool.
Cooperative work protocol
A cooperative work protocol is an algorithm that allows multiple mining participants to work on a single block simultaneously. The blockchain and its native cryptocurrency use a server linked to every miner in the same block to track their progress.
Cooperative mining service
A server must act as a connection to allow multiple participants to pool their resources in real time, which is called a cooperative mining service server. Mining functions as a decentralized platform, so having a server might seem counterproductive. However, pools require servers to maintain block generation and facilitate profits.
Each mining software provides distinct features and functionality. They establish a connection between the mining pool and the server, obtain required data for complex equations, and start working on solving them. When the software finds a solution, it sends the answer to the miner and proceeds to solve the following equation for the next block.
Types of reward systems
Mining pools distribute rewards in various ways. Here are the most common methods:
Pay-per-share (PPS) is a reasonably straightforward payment method. As the name suggests, miners are paid for each share they contribute to a block. Based on data and statistics, shares are valued at a predetermined amount before finding a block. PPS systems always pay miners, even if the group can’t find a block.
Full pay-per-share (FPPS)
Full pay-per-share (FPPS), also known as pay-per-share plus (PPS+), operates similarly to standard PPS reward systems. However, FPPS systems will reward miners with a transaction fee if a block is found. When a pool discovers a block, the miners distribute the rewards evenly. With FPPS, miners receive a standard reward and a transaction fee reward.
Pay-per-last N share
Pay-per-last N share (PPLNS) only pays miners if and when a new block is found. The pool then goes back and looks for legally deposited shares before discovering the winning block. This period is known as a “time window.” Shares provided during the window are tallied for rewards.
How to start working with mining pools
Once you’ve understood different crypto mining operations and cryptocurrency, you may decide to try mining yourself. Joining a mining pool increases your chances of being rewarded for your mining work and allows you to compete with the mining industry’s top dogs.
Looking to start working with a pool? Here are the steps to follow:
- Choose your equipment
You can mine cryptocurrency on various mining devices so long as they have sufficient power. Mining applications need a graphics processing unit (GPU) and a central processing unit (CPU) to operate. Nearly all computer systems have these two components. However, GPU and CPU mining may not be as efficient as it once was due to the increased demand for crypto mining.
Instead, look for an application-specific integrated circuit (ASIC). This is a dedicated mining apparatus. Another option is to build multi-GPU systems designed specifically for mining, but these systems tend to fall short of raw computational power and are significantly less powerful than ASICs.
- Ensure the pool is transparent
Before joining, ensure that the mining pool is transparent and check whether the pool manager operates in good faith. For example, check if the overall pool hash rate is accurate based on surface-level findings. Also, search for evidence of low reward schemes, and check the pool’s payout method. If the payment distribution happens to be a method you aren’t comfortable with, the pool may not be worthwhile, and you’d be better off joining another pool.
- Check pool size and computing power
The mining pool’s volume of coins over time is proportional to its computational power. A pool’s size might translate to its mining time, but generally speaking, the larger the pool, the faster it is to mine. Due to their greater computational capability, larger pools have a greater chance of generating blocks, whereas smaller pools typically take longer.
However, a smaller pool with updated ASIC equipment and ASIC miners can overcome a mining farm with obsolete resources. In the end, the mining pool with a higher hash rate will usually come out on top.
- Pick your pool and start mining
Once you’ve done your research, gathered your equipment, and found a pool that suits you, go ahead and start mining.
Largest cryptocurrency mining pools in the world
Slush Pool—now known as Braiins | Slush Pool—was the world’s first mining pool, launched in 2010. Since then, the crypto mining industry has erupted into a highly competitive and expansive space, especially with the growth of popular cryptocurrencies like Bitcoin and Ethereum (ETH).
Pools were initially exclusively intended for Bitcoin, but other cryptocurrencies came along, with nearly all popular cryptocurrencies having dedicated mining pools.
Mining pools are an essential part of the crypto ecosystem. The reason for their growth is simple: Mining pools enable consistent cryptocurrency mining and guarantee the smooth operation of a blockchain.
Here are the world’s largest mining pools by hash rate (at the time of writing):
- Foundry USA: 17.99%
- Antpool: 14.34%
- F2Pool: 14.05%
- Poolin: 12.06%
- BinancePool: 11.33%
Staking pools are equivalent to proof-of-stake (PoS) mining pools. Many PoS algorithms require users to have a certain amount of crypto locked up to participate in preserving the network’s integrity. This, along with technical know-how required to run a staking node, may be too much for many individuals. That’s why users can band together to form staking pools, which function much like mining pools.
Receive crypto without mining
The mining process can be an expensive affair. It also involves a lot of time and physical effort. Even then, your actions may be in vain if your mining pool isn’t successful in locating and mining blocks.
What if you could receive cryptocurrency for free?
Fortunately, you can! Introducing Worldcoin. We’re a new cryptocurrency company that aims to give everyone on the planet a free share of our cryptocurrency while preserving our users’ full privacy and anonymity.
To learn more, head to our website and subscribe to our blog.