Acryptoinvest.news: Mining is critical when it comes to securing Proof of Work blockchains. By calculating hashes, participants protect crypto networks. For those who don't already know, a hash is a sequence of numbers and letters generated by a cryptographic hash function.
When Bitcoin was first launched in 2009, it was fairly easy to mine. Anyone could mine using a simple computer and compete with other miners to solve equations.
Today, mining bitcoins has become very difficult.
In a mining pool, miners work together and the reward is divided between them.
Mining pools are the best place to start digital asset mining activities, especially if your computing power is quite low.
Mining pools give miners the opportunity to combine their computing power to receive a stable reward. Miners are rewarded based on their contribution to the network.
By joining a mining pool, miners increase their chances of mining a block.
But what is the exact definition of a mining pool? How it works? This article will teach you everything you need to know, from the mechanics to the pros and cons of mining pools.
What is a mining pool?
Why were mining pools created?
As mentioned earlier, mining Bitcoin or other major cryptocurrencies is not easy. The ever-increasing adoption of Bitcoin has led to an incredible increase in competition between miners.
This is why it is very difficult to mine a block on your own.. It is almost impossible for an ordinary miner to receive a reward. Companies have found answers to this question, and the components have evolved.
In the beginning, mining was profitable with multiple cards or even one. ASICs were created to respond to increasing network complexity. ASICs (special purpose integrated circuits) are specialized mining computers optimized to solve mining algorithms.
ASICs have turned Bitcoin mining into an industry, and the use of less powerful computers is now rare.
It is important to note that only the miner who finds the block first receives a reward.
Other miners mine new blocks and do not receive any rewards for their previous attempts. Mining pools were created to counter the increasing difficulty of Bitcoin mining.
Mass adoption of cryptocurrencies has led to an increase in energy consumption. For example, Bitcoin's carbon footprint is huge and costs are high. This is why miners, especially large ones, are moving to areas where electricity is more available, even if it means greater climate impacts.
Of course, other cryptocurrencies such as Ethereum use the PoW algorithm and are still profitable for GPU/mid-level miners. It is also possible to use mining rigs. Mining rigs are a kind of hybrid computers designed specifically for mining. By connecting mining rigs to the network, miners take part in a verification process called “Proof of Work” and protect the network and transactions sent by users.
There is a huge range of components for mining. Don't worry, there are many ways to start mining!
Acryptoinvest.news: Mining Pool
What is a mining pool?
Solo mining has become difficult and rarely profitable (at least consistently). This is where mining pools come into play.
A mining pool is a group of cryptocurrency miners who pool their computing efforts to solve the mathematical problems required for blockchain in PoW-based networks.
If you are looking for a way to earn a stable income, mining pools are ideal.
In a mining pool you will be able to team up with other miners regardless of your computing power. After this, you will be able to find several blocks per day thanks to other miners in the pool and your contribution. Your contribution will determine how much of the reward you will receive when the pool finds a block.
Main features of the mining pool
There are several main features to consider when choosing a mining pool.
Hashrate
Hashrate is a metric that measures the hashing power per second on a Proof Of Work based blockchain. Hashrate is a very important factor. The higher the pool hashrate, the easier it is to mine a block and then get a better or faster return on investment.
Reward distribution modes
There are different reward distribution modes, such as: PPS, PPLNS or FPPS.
This refers to the distribution modes used by pools to return rewards to their miners. You will find more detailed information about this a little further in the article.
Transaction costs
There are two main types of commissions when mining:. Firstly, when the pool sends rewards to miners, transaction fees are charged. The transaction fee amount is set by the network, but the pool chooses the system and frequency of reward distribution. The pool chooses how much they charge and keep from mining.
For example, PPLNS has lower fees and PPS has higher fees because mining pools must pay for miners' efforts regardless of whether blocks are found or not.
Removal
There are many ways to store mining rewards: wallets, web extensions or exchange wallets. Sometimes there are dedicated wallets for smaller networks/coins so you should check compatibility before getting started. Trust Wallet, Exodus, Metamask are wallets that support the most commonly used cryptocurrencies.
How does a mining pool work?
Transactions are verified and protected by miners. Mining is used to avoid double spending, that is, in essence, printing money from scratch.
Miners' computers act as transaction validators; these transactions are structured into blocks. Thus, when a block is found, it is added to previous blocks, forming a blockchain. Miners receive rewards from the network for their contributions.
Miners support the activities of Proof of Work networks. Moreover, the need for miners to join forces in mining pools has never been greater. The chances of finding a mining block on your own are low due to the increasing complexity of the network and competition on the network.
When a miner joins a pool, he must connect his hardware and software to the pool's servers.
To summarize, a share is a hash used to track the work of miners.
The mining pool accepts the connection and begins transmitting key information such as the mining difficulty the miner will face while mining.
What are the reward distribution systems?
Depending on each mining pool, there are reward distribution systems that are an integral part of the pool’s operation. They are often decisive when deciding which mining pool to choose as a miner. Indeed, it is through these various systems that miners earn their income (after fees).
Payment per share | Pay-Per-Share (PPS)
In this system, the miner receives a fixed amount for each share. The amount paid for each share is small, but it accumulates gradually. The share is not necessarily a valid hash because with PPS, miners are rewarded even if a block is not found.
Proportionality | Proportionnel (PROP)
Participants receive remuneration at the end of the work period. Remuneration is proportional to the shares of a minor, based on the total number of shares owned by them. In addition, remuneration depends on the shares accepted.
Payment for the last N-shares | Pay-Per-Last-N-Shares (PPLNS)
PPLNS is a form of profit sharing based on the number of shares miners bring in. If several blocks are mined, miners will receive high profits. If miners cannot extract a block, miners' profit is zero. PPLNS rewards miners only when a block is found.
In the short term, PPLNS correlates with something called luck. Luck represents the number of shares required for a mining pool to find a particular block, compared to the average number of shares required to find a block, depending on the difficulty of the network. If a mining pool is unlucky, the income of all members of the pool decreases, but the opposite can also happen!
Pay per share+ | Pay-Per-Share+ (PPS+)
PPS+ is a mixture of PPS and PPLNS. Block rewards are calculated according to the PPS model and transaction fees are paid according to the PPLNS method. In this mode, miners receive additional income from transaction fees using the PPLNS method.
When using PPS+, the mining pool also pays a transaction fee, which is triggered when a block is found.
Full payment per share | Full-Pay-Per-Share (FPPS)
In this mode, the block reward and mining service fee are paid according to the theoretical profit. This involves charging a standard transaction fee for a certain period of time and distributing it among miners according to their contribution to the hashrate. This increases the miner's income by sharing part of the transaction fee.
Comparison table of reward distribution systems
Here's a chart to help you see how different reward distribution systems deal (or not) with transaction fees, luck, and recurring payouts:
Acryptoinvest.news: Comparative table of Block Reward reward distribution systems | Reward for blocking Transaction fee | Luck Factor Transaction Fee | Luck Factor Regular Payot | Regular payments Expected Value | Expected value Actual Value | Actual value None | Nobody
We see that with PPS and FPPS you can get a payout regardless of whether the pool found a block or not. This is the biggest advantage over PPLNS.
But a miner will likely earn much more with PPLNS than with a PPS or FPPS mining pool if he contributes to a large block pool.