If you are thinking of mining, you probably already know that it takes acquiring computer processing power to compete successfully for block rewards. In the past, just about anyone could get into it. All it took was an average computer. However, as difficulty levels went up, solo miners could not keep up because massive hashing powers and constantly reinvesting in the latest hardware is a must to yield the same block.
Mining pools work differently
Mining pools made it possible for solo, small scale miners to profitably continue taking part. By contributing resources into a pool, they could split the returns in proportion to their power contribution.
Three things to consider before joining a pool
- When you decide to join a mining pool, you are essentially piggybacking along the strength of a group, rather than rely on yourself.
- When you go in it solo, you keep all the reward. However, the probability of you getting it is significantly diminished
- A mine pool stands better odds of hashing successful blocks and earning rewards. Consequently, rewards are apportioned to all members of a pool
The hash rate distribution across Bitcoin, the network, shows most are turning to mining pools.
How it works
Once you have your mining capabilities, either through your hardware or a virtual service, the next step is to find a pool to join. Simply sign in into one of the many available pools and create a ‘worker’ profile. Multiple profiles are also an option if you are using more than one piece of hardware.
Technically, only a connection to the pool administrator is required. You are not connected to the Bitcoin peer-to-peer network, rather, only the administrator is externally connected. Only they can be classified as a full Bitcoin client node as per Satoshi Nakamoto’s white paper.
As a service, pool mining comes with fees depending on the provider. Some pools will deduct about 1%-10% of your apportioned payments while others will charge zero.
Sharing rewards in a pool
Members of a pool never get to meet or know each other, yet, have to come together, mine and share profits. Therefore, steps have to be taken to assure transparency of reward schedules, thus mitigating cheating by clients and servers. This is in the form of reward sharing protocols or methods.
The common sharing methods include:
- CPPSRB – Capped Pay per Share with Recent BackPay
- ESMPPS – Equalized Shared Maximum Pay Per Share
- RSMPPS – Recent Maximum Pay Per Share
Choosing the right mining pool is critical to optimizing the most of your hardware mining operation. A great place to start is to find a comprehensive list of pools, profit sharing approaches and explanation in this wiki