Crypto Guide: What is a Crypto Mining Pool
Cryptocurrency mining is the process blockchain networks, like Bitcoin and Litecoin, use to finalize transactions. We call it mining because it involves adding new tokens to circulation. During mining, crypto miners compete to solve a mathematical puzzle encrypted in each blockchain block. Computers use trial-and-error to solve these puzzles; the first gets a blockchain reward. In short, mining is high-end guesswork with a monetary incentive, like free Bitcoin which currently stands at 3.125 BTC. However, the process requires a lot of computing power and is pretty expensive for most of us.
Crypto mining, or the process of adding new tokens into the circulation by solving puzzles, is expensive and technology-intensive. Those individuals who decide to get into crypto mining must buy a few expensive hardware and other equipment to start the process.
For starters, a Bitcoin miner must prepare at least one specialized computer (an Application-specific Integrated Circuit or ASIC miner), a reliable (and cheap) power supply, an internet connection, a cooling infrastructure, and, of course, some computer and software skills to run and manage the crypto mining operations. In short, the average person must spend a substantial amount to start decent mining operations.
According to some research, Bitcoin and crypto mining activities are also putting pressure on our natural resources, including the electricity grid. Also, a research analysis suggests that after June 2018, cryptocurrency mining was only lucrative for professional miners in countries where power costs were less than 0.14$/kW.
What is a mining pool?
Since the traditional crypto mining has high entry barriers, many are looking at a mining pool as an alternative. A crypto mining pool is a group of miners who combine their computational resources to mine crypto blocks. Instead of working individually and competing with others, miners work together using shared resources to solve cryptographic puzzles and earn rewards.
With their pooled resources, they have a better chance of finding a block, solving puzzles and getting frequent rewards. Since they work as a team, they're expected to share the crypto rewards with the members of the pool.
According to Hash Rate Index, the Top three crypto mining pools today are Foundry USA, which accounts for 34.20% of the total activity, AntPool, which has an 18.52% share of this market, and F2Pool, which has an 8.93% share. Interestingly, the data includes "Others," which has an 18.52% share.
Foundry USA is currently the leader with a 257.2 EH/s in the last week. It's the world's biggest Bitcoin miner and according to its official page, it adheres to high professionalism, trust and transparency. The company pays its miners through the FPPS payout mode and implements SOC compliance and a Know Your Customer (KYC) protocol for all its BTC mining pool members. Regarding location, Chinese pooled mining firms top the list with a 51.4% share, and the US has 42.7%.
How do crypto mining pools operate?
If you join a crypto mining pool, you'll share your mining equipment's hash rate with the pool's resources. The crypto pool works together to solve complex puzzles and algorithms, and add a new block to the chain.
After successfully mining a block, the pool earns its reward (currently 6.25 BTC, similar to LTC), divided among members based on the hash power contributed. The crypto pool operator gets a cut from the reward for its operations and management fee. In short, there are three common elements that we can find in every crypto mining pool:
- Shared Hash Rate: All miners share their computational power or hash rate to boost the chances of successfully mining a block.
- Reward Distribution: Members are rewarded based on their percentage of contribiution to the total hash rate.
- Operator's Fee. The pool operator gets a cut from the rewards as a fee for managing and operating the crypto pool.
Payout models used in crypto mining pools
Understanding how pools share their rewards is key in picking the right crypto mining pool in the future. Here's a quick look at the popular payment models used by top crypto and Bitcoin mining pools.
- Pay-Per-Share (PPS): Under the PPS model, participating miners get a fixed reward for each share they add to the pool. Pool members receive consistent payouts even if the project fails to successfully mine a block. This payout arrangement is best for crypto miners who require stable income.
- Full Pay-Per-Share (FPPS). A variation of the PPS model is the Full Pay-Per-Share (FPPS), which incorporates mining or transaction fees. Traditionally, the FPPS model calculates a standard transaction fee within a specific period, like the past 24 hours, and distributes these to pool members. In short, pool members increase their mining earnings thanks to transaction fees.
- Pay-Per-Last-N-Shares (PPLNS). Under the PPLNS model, the miner is paid on his share of contributions over some time (N shares). Crypto miners earn a variable amount, which can become higher if the mining pool becomes successful. You can work for a mining pool with this payout arrangement if you're comfortable with fluctuating payouts.
Should you join a crypto or Bitcoin mining pool?
Are still on the sidelines and thinking if you'll join a Bitcoin or crypto mining pool? Joining a crypto mining pool offers plenty of benefits over solo mining. Described below are some of the benefits you'll get when working with a pool:
- Less Expenses. You don't need to spend a fortune to buy specialized computer equipment and software. In a pool, resources are shared, meaning you'll get help paying for the internet and power.
- Better Chances of Confirming and Adding Blocks. Participation in mining pools increases your chance of mining a block compared to doing it alone.
- More Frequent Rewards. Enjoy a consistent income stream with a crypto mining pool.
- Community Support. Mining for Bitcoin or other cryptocurrencies become more exciting since you have the support of other like-minded individuals. Operators of mining pools manage forums and support channels that offer guidance and technical help for miners.
