How Do Cryptocurrency Mining Pools Work?
An investor looking to reap profits through cryptocurrency has one of two options, Buy or Mine. Purchasing Cryptocurrency is a standard transaction where fiat currency is exchanged for Cryptocurrency on public Cryptocurrency exchange markets. Cryptocurrency mining is a calculation-intensive, puzzle-solving-like computation process that requires high processing power along with high electricity consumption. The miner who first solves the puzzle gets to place the next block on the blockchain and claim the rewards. Rewards include the miner becoming the owner of the newly released bitcoin, or getting fees linked to the transactions performed in the block.
Pooling Resources: Let’s Mine Better, Together
A mining pool is a collection/group of miners working together to increase their chances of finding a block at the group level, compared to that at the individual level. Through such pools, miners combine their individual computational resources with those of the other members which enhances their joint processing power, and helps to achieve the desired output faster.
To draw an analogy, a gold digger having the capacity to dig 100 square meters of land in one day will take 100 days to explore one hectare of land for gold. Combining 100 gold diggers can complete the job in just 1 day. The discovered gold can be split among all 100 diggers evenly, assuming all have put in equal effort to explore their assigned portions of land.
Functions of a Mining Pool
A mining pool is the pooling of resources by miners, who share their processing power over a network, to split the reward equally, according to the amount of work they contributed to the probability of finding a block. A “share” is awarded to members of the mining pool who present a valid partial proof-of-work. Mining in pools began when the difficulty for mining increased to the point where it could take centuries for slower miners to generate a block. The solution to this problem was for miners to pool their resources so they could generate blocks more quickly and therefore receive a portion of the block reward on a consistent basis, rather than randomly once every few years.” – Wikipedia
Based on the accepted shares, members get rewarded using Pay-per share (PPS) which allows instant payout solely based on accepted shares contributed by the pool member, who are allowed to withdraw their earnings instantly from the pool’s existing balance.
Before deciding to join a particular pool, investors should be aware that no payouts can be made until the pool finds a block. Only miners who have shares accepted towards working to find a block will be paid. All payouts will be made directly to the investors wallet. All pools will charge 3% as pool fees for all transactions.