11 July 2020

Photo by Dmitry Demidko on Unsplash

Mining as an individual has become challenging to achieve over the past few years. The truth is, big mining companies tend to oppose the small individual miners at home. This is where such communities as Bitcoin mining pools can play a significant role.

In order to understand how mining pools can offer a compelling solution for individual miners, it is essential to first understand some important mining concepts.

What is Cryptocurrency Mining?

Cryptocurrency mining is the process that verifies transactions. Mining is also responsible for adding transactions to the blockchain. This process is called “finding blocks” and is done by a cryptocurrency miner. The miners verify the authenticity of the transaction information through mining.

They also update the blockchain every time a new block is mined. This verification avoids the common double-spending problem and ensures the legitimacy of each transaction.

But crypto mining is not an individual effort.  In this competitive procedure, known as Proof-of-Work, crypto miners are competing with each other. Essentially, they are competing to be the first to solve complex mathematical equations. This process is undergone by the dedicated computing devices that the miner has in their possession for mining. The first miner to verify the transaction is rewarded. It might be a small amount of cryptocurrency, but it is theirs to keep. This is not only the process for Bitcoin either; many other crypto’s that utilize the blockchain are also mined similarly.

The primary downside to cryptocurrency mining is that it requires significant computing power in order to compete to solve these equations. At first sight, the thought of spending hundreds of dollars on mining equipment can be daunting, on top of your electricity bill likely going through the roof as well. However, there is an alternative. Pool mining has arrived to save the day and your wallet.

What is Pool Mining?

Pool mining is a mining approach in which a group of miners work together to generate a block. They do this by, you guessed it, pooling their resources.  This means that miners can now team up with other miners, combining their computing resources in order to mine cryptocurrency effectively. The block reward is then split in proportion to the contributed processing power. Instead of potentially having to wait years mining individually, miners have a much better chance of finding a reward if they work as a team.

Bitcoin has become one of the most popular cryptocurrencies in the world. But, this popularity has increased the difficulty and potential upfront costs of cryptocurrency mining. These mining pools could be an excellent alternative for miners who want to save time and money.

How Do Bitcoin Mining Pools Work?

As we said before, miners are looking for the same thing. They want to solve the block and get the reward. They combine their computing devices to improve their hashing output; the more powerful the computer, the higher the output. With this, they can increase their chances of solving the block.

The mining pool works as a coordinator for the pool members. It has different functions, such as managing the pool members’ hashes and recording the miner’s work during a mining session.  The mining pool also calculates and assigns the reward shares to the pool members according to the performed work after verification. Of course, they charge a small fee for this.

Mining pools are also responsible for dividing the work amongst the pool members. A work unit composed of a range of nonce (number only used once) is assigned to each member. Once the members complete the assigned work, they can place a request for a new unit of work via the mining pool.

Pool Algorithm

The pool algorithm studies the miners from different pools. After that, they distribute the work according to their skills and output. It’s best to use an example here to better understand how this works. Let’s say there are two pools; pool A and pool B. In pool A the miners are stronger and have a higher output than in pool B. Given this, the algorithm assigns harder tasks/equations to the members in pool A, and the easier tasks to the members in pool B.

After the identification of the block hash, pool members share the reward. This is done according to the mining pool mechanism. The shares are divided based on how much work an individual pool member contributed.  This is decided based on how many of the pool members’ shares were rejected or accepted.

Rejected Shares

Rejected shares do not contribute to a blockchain discovery.  Unfortunately, rejected shares are not inevitable. Not everything processed by a member’s computer will be useful in the discovery of the coin. Think of it as a red herring in a puzzle escape room; it looks like it might possibly be leading somewhere, but it turns out it actually wasn’t conducive to the final product.

In other words, pool members are not always rewarded. They will only receive a reward if their contribution helped find a new coin block. In other words, if a miner was only able to produce rejected shares, they will not be rewarded for the mining of the coin block. However, if the miner can generate accepted shares, the miner will be rewarded. Typically a miner will have a varying percentage of accepted and rejected shares. This accounting method allows the pool to keep the reward distribution fair amongst all of the participating pool members.

A Solution for the Aspiring Miner

A mining pool is essentially a remote mining organization made up of enthusiastic individuals pooling their resources together to achieve a common goal. There are many Bitcoin mining pools nowadays. Two of the most popular pools are Slush Pool and BitFury Pool. However, Cryptominers have plenty of options according to their preferences and needs, and mining pools could be an excellent alternative for getting involved in the mining process without having to worry about massive up-front costs.

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Edmund McCormack
Tech industry veteran and blockchain technology investor. Simplifying cryptocurrency for almost a decade.

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