Before diving into the mining pool, let's clarify where the mining term comes from. The terms ‘mining’ refers to the process of adding transactions of new blocks to the large distributed public ledger of existing transactions. You sure know what ledger I'm talking about! Bingo, blockchain ledger! But it’s not the whole story; we need more clarification. Follow me to see for yourself.
Bitcoin was like a spark in the crypto world, and all the fire and heat started with it. On average, there are 144 available blocks in the Bitcoin blockchain every day. Since the number of miners exceeds these 144 blocks and each of them wants to get some reward on a daily basis, the mining process becomes more and more competitive. Therefore, we need a solution to tackle this issue to solve more puzzles through PoW and add more new blocks to the chain. This solution is known as Mining Pool! The following section will elaborate on it.
From delving into the PoW, we’ve learned that mining is the process that miners of Bitcoin and several other cryptocurrencies use to generate new coins, verify new transactions and extend the chains of blockchain. But their function doesn't end here! To increase the chances of finding and adding a block, miners share their power sources (computing capabilities) and combine the hash power. Now, let’s see what mining pools do in practice.
A mining pool plays the role of a coordinator for all the pool participants. It takes the pool member hashes to find new blocks, records how much work all the participants are doing, and rewards members according to their share of the contributed power. For instance, in the Bitcoin blockchain, the reward is 12.5 BTC; in the Ethereum network, 2 ETHs. So, if you’re interested in mining Bitcoin, you have two options: joining a mining pool (where several miners and their devices pool their hashing power) or going solo with your own specialised equipment. Wait, what is solo mining?! Don’t panic; you’ll figure it out in a sec.
Solo mining is a type of cryptocurrency mining in which you use your own hardware without any help and participation from other miners. If you find the right solution for validating transactions in new blocks, you will get coins as a reward. Actually, it somehow reminds us of the cold staking! To learn about staking and its categories, check here.
Here are some serious points to consider that will aid you to join any mining pool with eyes wide open!
Every single pool has its own payment method and reward type. Among all the reward structures, PPS, PPLNS, FPPS, and PROP are the common payment models used mainly by mining pools currently. Let’s have a sneak-peek into each method.
In PPS (Pay-Per-Share), a miner will receive a standard payout rate to complete each share. Shares are "failed blocks" that a pool uses as evidence of a small miner's participation. Each share is worth a certain amount of mineable cryptocurrency.
FPPS (Full-Pay-Per-Share) is similar to the PPS, with only one difference that FPPS calculates the transaction fees and then pays a transaction fee reward to the miners included in finding the block.
PROP is the easiest way to reward miners. When a block is found, the reward is distributed among all workers proportional to how many shares each of them has found.
In PPLNS (Pay Per Last (luck) N Shares) rewards system, you, as a miner, get rewarded only once the block is found by the pool. You will be rewarded based on the number of shares you submitted during a shift.
Mining pools provide faster processing due to using multiple nodes in the network. Compared with solo mining, mining in a pool is much cheaper, and the chance of being rewarded is higher. Despite this speed in mining pools, the miners will not be rewarded as much since block rewards have to be shared. Also, you should consider hacking attacks. If an attacker finds out the vulnerability in a pool system, all the deposits held by the pool will be lost. Remember that you should always check the network. Since the network is run by multiple miners, an issue with any miner could put the whole network in jeopardy.
At the first step, you should choose a mining pool on your own connect the Stratum addresses of the pool to your mining software. Then, to get your pool rewards and the payout, you need a wallet. After connecting your wallet, you must configure your hardware and start mining.
It’s no secret that there are numerous mining pools in the market. The following is a list of the most powerful Bitcoin mining pools:
Here, we took a look at the mining pool, its functions and different payment methods. We learned that mining pools allow miners to gain more coins. Our main intention at Cryptologi.st is to educate you about the crypto world and its components by providing top coin reviews, hot news, and educational posts to help you make confident investment decisions.
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