What is a mining pool?
The more active miners there are on a blockchain, the harder the mining process is, with fewer rewards given each time a new block is mined. Mining pools were created in order to deal more effectively with the increasing difficulty of mining Bitcoin and other cryptocurrencies.
Similar to how you would pitch in with your friends to buy a gift for someone, a mining pool is the combined ‘pool’ of resources shared by miners. Processing power is contributed from across the network, measured by hash rate, and the reward is then split equally according to the amount of work or processing power each miner contributes.
A share is then given to the miners who can present valid proof of work. While the rewards received are lower by design, by pooling resources miners can generate blocks at a faster rate than by themselves. In this way, joining a pool is a much more profitable way to mine Bitcoin, guaranteeing a far more consistent block reward than going it alone.
Methods of pooling
- Pay-per-share (PPS)
Instant payouts with members allowed to withdraw earnings based on their accepted shares. With this method, if the mining pool accepts your contributions, you won’t have to wait until a new block is mined before cashing out.
- Proportional (PROP)
In this method, shares are given out at the end of each mining round, with the amount you receive dependent on your contribution towards the pool’s processing power.