Everything You Need to Know About Pool Mining

Everything You Need to Know About Pool Mining

Jil Parkins

What’s the benefit of pool mining?

In the past, individual crypto miners had to hook up their computer as a mining rig to successfully mine for coins. But once they had it set up, they still found it difficult to compete in the ever-changing world of cryptocurrency mining.

The increasing popularity and corporatization of cryptocurrencies, as well as the rise of new coins, makes mining more difficult than ever before. That’s why many miners are now turning to pool mining, a practice that can significantly boost an individual miner’s output.

Why is it harder to make a profit with solo mining?

Let’s take this one step back and answer the question of, “How do you mine for cryptocurrencies?” Crypto miners use computational resources to solve complex math problems. Their way of “mining” happens digitally, but like actual mining, it’s an energy-intensive process.

A miner’s success depends on their ability to solve challenging mathematical puzzles. When a miner solves one, they’re allowed to verify the most recent transactions and add a new block to the blockchain. This results in the miner being awarded newly minted coins. They also receive the fees that are charged on each verified transaction.

While this may sound simple, solving these puzzles has become progressively capital- and energy-intensive. This is partially because blockchains have begun to increase mining difficulty and reduce rewards as more miners become active on a blockchain. This means miners have to attain and use costly, specialized mining equipment to stay competitive.

For example, larger equipment may require the installation of cooling systems and the expenses that go with them. Electricity bills may also skyrocket for these miners, making it hard for them to remain profitable. Unless the revenue a miner generates from their mining operation outpaces their utility and mining rig maintenance costs, they have no chance of being successful.

Another factor affecting miners’ abilities to be successful is the corporatization of cryptocurrency mining. Now more than ever, large, corporate miners have entered the marketplace, and they make it even more difficult for a solo miner to turn a profit. These organizations are typically backed by enough capital to build mining farms that contain lots of mining rigs. They’re often set up in places with low electricity costs and cooler temperatures, which decreases their overhead costs while simultaneously increasing their mining power.

These are the main reasons solo mining is more challenging than ever before. The chance of a solo miner finding new blocks is low, costs are high, and competition has increased. That’s why many are turning to mining pools instead.

How does a mining pool work?

A mining pool is a solution for solo miners that combines the hash power of a group of miners to increase their probability of finding new blocks. Essentially, it’s an agreement between individual miners that they’ll create a coordinated network, pooling their computing power in an effort to generate a higher output. When their resources are combined, these miners may even generate an output that rivals — or even exceeds — that of a large farm.

WoolyPooly Mining Pool

In a mining pool, miners share the rewards they earn. Although this may mean they earn less than they would if they mined the same block alone, it generally results in smaller but more consistent profits than a solo miner could generate. Because of the regularity of payouts, pool mining tends to be more attractive and sustainable than mining solo.

What does a mining pool do?

A mining pool acts as a coordinator, assigning individual work units to different members of the pool. Record-keeping is another function. Mining pools analyze and record how pool members are performing. They also concentrate and direct the hash power of pool participants toward finding new blocks. And of course, when a block is successfully mined, they reward members based on their share of the contributed power.

How do mining pool assignments work?

It’s important that miners within the mining pool don’t duplicate work. So, mining pools assign individual work units to their members. As an individual work unit is successfully computed, it contributes to the overall chances of the pool mining a new block. Miners also have the power to request more work units once they complete their assigned work, though their ability to contribute is directly related to their computing capacity.

Mining pools may also let pool members choose how much work they want. This alternative to simply assigning work gives miners the flexibility to select their own work units while still ensuring they aren’t duplicating the work of others.

How do mining pools reward their members?

There are two common sharing methods used by mining pools: PPLNS and SOLO. PPLNS means “Pay Per Last N Shares,” and this method calculates a miner’s payments by looking at the number of shares they submitted during a shift. Miners in this type of pool only get paid once a block is actually found, so this is ideal for pools with loyal members.

On the other hand, SOLO means mining alone. Mining pools that use this approach typically provide an independent connection to the node and then calculate a miner’s payments based on the blocks they find.

PPLNS and SOLO method rewards

No matter which of these methods a mining pool uses, a miner’s share of the mining pool’s output will always have a direct impact on their projected rewards. It’s also worth noting that work shares can be accepted or rejected by the pool. When the pool accepts a miner’s shares, it shows that the contribution of the member has had a positive influence on the pool’s ability to find new blocks.

Rejected shares indicate that a miner’s work had no direct impact on the success of the pool. For example, shares might be rejected if a miner can’t meet the submission deadline — regardless of whether they completed their assigned tasks successfully. If they don’t meet the deadline, their output doesn’t assist in the pool’s coin discovery process. Thus, their shares are rejected.

Because mining pools only reward members based on their accepted shares, it’s important for miners to understand the sharing formula of a mining pool before they opt to join it or connect their rig.

Why do miners join mining pools (and why do some continue solo)?

The most helpful thing about mining pools is that they offer solo miners a more scalable way to participate in crypto mining. Through the pool, they’re able to contribute their computer power to a group effort that helps them have more success than they necessarily would by adding mining rigs to their operation and paying their own utility costs.

But as mentioned earlier, mining pools require miners to share their rewards, which means miners earn less than they would if they mined the same block individually. Still, pool mining generally provides more consistent profits than solo mining.

Also, while pool mining is an important part of the crypto mining sector, the recent rise of several large mining pools may indicate the potential centralization of the mining sector. These large pools can disrupt current mining processes and result in undue control over the governance of crypto networks.

Despite these pros and cons of mining pools, these operations still enable individual miners to compete with large farms and turn a profit. Pool mining gives members a clear advantage over their solo mining counterparts, which means this type of mining will likely remain as an integral part of the crypto industry.

What is considered the best mining pool?

Members note that WoolyPooly is one of the most profitable pools due to its reward system. They pay miners more through a modified version of PPLNS. Their payouts happen automatically after a miner reaches the minimum payout threshold rather than depending on time. Miners can take as many payments as they want. Additionally, WoolyPooly has dedicated servers across the globe, including in the U.S., Europe, Asia and Australia. Their average ping is typically less than 100 ms.

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