Mining is a game of chance, only one miner ends up mining a block, but all compete against each other. In the context of Bitcoin mining, a mining pool is the pooling of resources by miners, who share their processing power over a network, in order to spread the reward evenly, depending on the amount of work they contributed to the likelihood of finding a block. Pooled operation effectively reduces the granularity of the reward generated by block generation, by spreading it more easily over time. The mining pool coordinates the workers. It’s like a lottery pool. Your chances of winning the lottery are very low, so you team up with a group of other people and you agree to split the winnings. This greatly increases your chances of winning, but the amount you earn is much lower.

There are also various payment systems, the most common being:

  • PPS – Pay Per Share. Each submitted share is worth certain amount of BTC. Since finding a block requires shares on average, a PPS method with 0% fee would be 50 BTC divided by . It is risky for pool operators, hence the fee is highest.
  • SMPPS – Shared Maximum Pay Per Share. Like Pay Per Share, but never pays more than the pool earns.
  • ESMPPS – Equalized Shared Maximum Pay Per Share. Like SMPPS, but equalizes payments fairly among all those who are owed.
  • CPPSRB – Capped Pay Per Share with Recent Backpay.
  • Prop. – Proportional. When block is found, the reward is distributed among all workers proportionally to how much shares each of them has found.
  • PPLNS – Pay Per Last N Shares. Similar to proportional, but instead of looking at the number of shares in the round, instead looks at the last N shares, regardless of round boundaries.
  • Score – Score based system: a proportional reward, but weighed by time submitted. Each submitted share is worth more in the function of time t since start of current round. For each share score is updated by: score += exp(t/C). This makes later shares worth much more than earlier shares, thus the miner’s score quickly diminishes when they stop mining on the pool. Rewards are calculated proportionally to scores (and not to shares)