Bitcoin mining is one of the most exciting endeavours. Apart from the lucrative economic returns, it gives miners the privilege to mine their bitcoins. While the yield may vary from one miner to another, it is always considered a more profitable option than buying. From the technical point of view, mining is the activity that allows miners to generate bitcoins by using proof of work algorithms. A few years ago, it was easy to mine bitcoins virtually from any computer and make good profits. But as bitcoin mining grew popular, that privilege was quickly taken away as solving hashes became difficult.
Today, you have to invest in powerful hardware to make substantial profits as a solo miner. This challenge is what prompted miners to come together and form what we now call ‘mining pools’ to increase the chances of solving the hash rate.
What is a bitcoin mining pool?
Pooled mining means miners are working together and work like one big miner, which guarantees faster solving of blocks and earns regular profits. The whole purpose of a bitcoin mining pool is to work together and form a pool. When miners combine their resources and efforts, they increase their chances of discovering the solutions to any block. When a solution to a block is found, it rewards the newly generated coin to its miner– the pool owner. The pool owner then shares the profits between the miners based on their contributions. While earnings, in this case, are shared, pool mining creates constant revenue in small values, which makes it better than mining solo, which can take up to a year to mine a block.
How do bitcoin mining pools work?
Different mining pools have different ways of doing things. With the changing trends, these pools keep proposing and introducing new methods and adjustments to help keep the pool up to date. Most mining pools operate by using one operator, who sets up the service for miners. Through this connection, the mining pool operator will share block templates to the miners. These templates, as we would call them, show how the next bitcoin block looks like without the required PoW.
The miners then start guessing what the next block could be. In simple terms, they perform the proof of work. If one or several guesses are correct, they return the valid Bitcoin block to the pool, and the entire pool broadcasts the found block to the bitcoin network and earn the reward. The operator slashes the block reward into small pieces to pay other miners based on their contributions. The payout depends on the expected value of the hash rate.
Other pools that don’t depend on an operator use a mini blockchain or allow miners to create their block templates to be approved by the mining pool.
Bitcoin mining pools: Are they profitable?
The simple answer to that is, who doesn’t want to get the whole reward to themselves? But that comes with a price. Bitcoin mining through pools gives small revenue compared to solo mining. While mining individually may take longer to receive profits, a solo miner is more likely to earn more than those mining in a pool. The little revenue earned is also cut as mining operators also charge a service fee for their services.
However, when we look at mining in another dimension, where miners consider bitcoin mining as a means of earning income, it gives a different picture. Joining a mining pool will guarantee small returns constantly. Mining pools solve their algorithms faster, meaning that there will always be a reward coming every other time. This gives miners a stable income even if it comes at a fee. Solo mining, on the other hand, takes longer, and you have to invest heavily in equipment.
Additionally, the mining process comes with its fair share of challenges. Dealing with rejected blocks, orphaning, and bad miner inefficiency are some of the technical problems a solo miner may encounter when solving blocks. Mining pool operators have better mining strategies and have streamlined the mining process to minimize potential challenges and losses.
Does the pool size matter?
Many analysts believe that the size of the pool doesn’t matter as the number of coins mined over time is proportional to the number of miners in the pool. However, time is the factor here. Larger pools have higher chances of solving more blocks due to their massive computing power, while smaller pools may need more time. Small pools may take longer, but not all the time– and it’s during these lucky times that they make higher returns. Smaller pools are ideal for individuals looking to get higher payouts over long periods. However, if you are looking for a more stable regular income, a large mining pool can be a perfect choice.
Factors to consider when choosing a mining pool
Choosing a bitcoin mining pool may seem daunting, especially if you are new to bitcoin mining. With hundreds of mining pools available in our systems today, it is almost impossible to know which pool is best for you and matches your needs. Whether you are looking to join a large pool full of miners or you want to join a small group of miners with more significant profits, pool mining is the best way to earn a regular income. However, just like any competitive product in the market, you need to choose your pool wisely to avoid making bad decisions that will only lead to losses and frustrations. To help you make an educated decision, here are a few factors to consider when choosing a mining pool.
Task assignment mechanism
Like we already mentioned, mining pools use varying methodologies to assign tasks to miners. Therefore, make sure you understand the requirements and the mining method used before joining a mining pool. Similarly, some miners are faster and well versed with bitcoin technology than others. Operators know this and usually assign them simple tasks to low power miners and the complex ones to the high power miners. Such mining pools are more likely to make more income than those that distribute tasks randomly.
The industry is now filled with millions of mining devices with advanced technology. Before committing to a specific pool, make sure that your device is compatible. Some pools don’t allow the use of phones, CPUs or GPUs when mining bitcoins. Some require miners to have specific software and a certain amount of internet bandwidth to the server to join the pool. Therefore, when choosing a mining pool, check such stipulations to ensure you are not disqualified from the mining pool.
Transparency of the operator
With the existence of many pyramid schemes in the bitcoin mining industry, it’s easy to get scammed. Most mining pools operate with the help of an operator who must be transparent and trustworthy. Operators have to give exact hash rate figures, pay miners what they deserve without playing monkey business. It’s easy to identify a mining pool with a legitimate operator, as they are usually packed with positive miners. No one wants to be taken for a ride, and miners who are not satisfied with their operator typically leave. Similarly, legit pools have measures and rules that must be followed by the miners as well as the operator. If your potential pool has worrying operations, dig more to find out and only join pools with transparent processes.
Pool fee and payout threshold
While there are pools that charge a small fee to miners joining the pool, there are pools that charge no fee. However, a free service fee is not always good news because it could be hidden in the payout. Before joining an open mining pool, pay attention to the mathematical formula used to determine whether there are irregularities. Consequently, if your mining device is low-end, you may want to focus on pools with lower payout threshold where your computational power is significantly lower. Higher thresholds may need more time and power to hit to get paid.
Pool sturdiness and stability
Another critical factor to consider is security. Assess whether the pool is providing a secure and open connection. An excellent mining pool should not be vulnerable to DDoS attacks, and when hit by hackers, it should withstand the challenge.
Bitcoin mining has become one of the most emblematic activities in the world of Cryptocurrency. The development of mining pools has made mining easier, particularly for small scale miners who don’t have the tools and resources to mine effectively on their own. However, as a miner, you need to focus on various aspects of mining pools before settling down with any. Evaluate all your options and match them with your needs. Mining pools that align with your desired features are likely to be legitimate, beginner-friendly, and revenue-generating. Once you have put into consideration the above key points, your decisions to mine are much more informed, and you will have a better mining performance with little drawbacks.