Mining cryptocurrencies used to mean hooking up your computer in your basement as a mining rig — but now you can mine crypto in a pool much more easily.
Individual crypto miners often find it challenging to compete in today’s mining sector, as the difficulty of mining new coins rises along with the growing popularity of cryptocurrencies. To stay relevant in this increasingly corporate-focused industry, crypto miners often resort to pool mining. This article discusses the concept of pool mining and how it can boost the output of miners.
Why Is Solo Mining a Less Profitable Venture?
To make matters worse, the influx of large, often corporate, miners makes it a lot more challenging for a solo miner to generate profit. These large miners have the capital to build mining farms (facilities designed to house many mining rigs) in regions with cheap electricity and a predominantly cold climate. By doing so, they effectively increase their mining power while reducing the overhead costs of running a farm.
As a result of these factors, solo mining is quickly becoming redundant since the chances of finding new blocks are slim, and the costs continue to increase. Because of that, mining pools are considered a more promising approach than solo mining.
What Are Mining Pools?
What Are the Functions of a Mining Pool?
How Does a Mining Pool Assign Work?
Mining pools assign unique work units to each pool member to avoid overlapping work. Each successfully computed work unit contributes to the overall chances of the pool mining a new block. Once a miner completes the assigned work unit, they can request more. The computing capacity of each member determines the volume of work assigned to them.
An alternative method is to allow pool members to choose the volume of work they want. With this approach, miners have the liberty to pick work units as long as they do not clash with other members’ range of tasks.
How Do Mining Pools Distribute Rewards?
Mining pools use several methods to share rewards. Regardless of the type of sharing formula in play, your projected reward boils down to your share of the output of the mining pool.
Note that the work shares can be accepted or rejected by the pool. Accepted shares indicate that the contribution of a pool member has positively impacted the pool’s chances of finding a new block.
On the other hand, rejected shares denote work that had no bearing on the success of the mining pool. Even if a miner completes assigned tasks successfully but cannot meet the submission deadline, their output fails to impact the pool’s coin discovery process, and so their shares are rejected.
Understandably, mining pools reward members based on their accepted shares. It is advisable to fully understand the sharing formula of a mining pool before joining it or connecting your rig.
Below are two of the sharing methods commonly used by mining pools.
- Pay-per-Share (PPS): This offers instant payouts as members can withdraw earnings based on their accepted shares. Hence, as long as the mining pool duly recognizes your contributions, you do not need to wait until a new block is mined before cashing out.
- Proportional (PROP): In this case, shares are disbursed at the end of each mining round. The amount you will receive depends on your share of the pool’s hashing power.
What Are the Pros and Cons of Mining Pools?
It is safe to say that mining pools offer individuals a more scalable method of participating in crypto mining. By combining computing power, the constituent miners can achieve higher success rates without acquiring more mining rigs or paying more for electricity.
On the downside, the rewards generated by mining pools are shared. Therefore, miners receive diminished rewards. However, in the long run, pool mining tends to be a more consistently profitable venture than solo mining.
Another concern about mining pools is that the rise of a handful of large pools has resulted in the potential centralization of the mining sector. Together, these mining pools can disproportionately influence the governance of crypto networks.
Ultimately, pool mining is an integral component of the crypto mining sector. It provides an enabling environment where individual miners can still compete with large operations and make a profit. The architecture of mining pools and the advantages offered to small miners are clear indications that pool mining will remain a relevant concept in the crypto industry.