What is a cryptocurrency mining pool?

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In the early days of Bitcoin (BTC), crypto-enthusiasts only required a basic personal computer with an Internet connection to generate new BTC tokens through a distributed computing process known as mining.

However, with more people chasing the same number of block rewards, the Bitcoin mining process has become more difficult over time. In fact, the amount of rewards will gradually decrease by half every four years, making it less rewarding for individual miners who will have to allocate greater computing resources over time.

Available on blockchain protocols that utilize a proof-of-work (PoW) consensus mechanism, this mining process requires application-specific integrated circuits (ASICs) to be deployed in the form of large platforms to complete the complex nature of mathematical problems within. the time required to mine a block.

With the increasing difficulty of the mining algorithm and the rewards for mining a block decreasing over time, it has become impossible for a single piece of personal computing equipment to successfully mine a block.

This brought the concept of a cryptocurrency mining pool to the forefront, where individual miners or users gather and pool their computing resources to improve their chances of mining a block and share the rewards received between them.

Having existed since 2010, when Slush Pool was formed as the first Bitcoin mining pool, there are now many popular mining pools for cryptocurrencies such as Ether (ETH), Zcash (ZEC), Bitcoin Cash (BCH), Bitcoin SV (BSV) and more. to choose

Full of its own dashboards that provide status on aspects such as the status of the mining hardware, the current hash rate, estimated income and other parameters, the mining pools offer crypto users the opportunity to participate in the mining process of a particular cryptocurrency constantly and earn regular rewards . in proportion to the computing power contributed.

Understanding the cryptocurrency mining process

Before we delve into what cryptocurrency mining is and how an individual can join one, let’s take a look at how cryptocurrency mining happens and understand the key pitfalls involved.

First, for any PoW blockchain protocol, the process of mining its native token involves solving mathematical problems using computing power, where the correct answer is represented as the hash number of the block, and rewards are presented to the entity that solves the fastest.

These rewards are presented in the form of native tokens, with the mining process programmed so that a new transaction block is mined after specific periods of time. In the case of Bitcoin, this time is about ten minutes and the complexity, or hash rate, is adjusted depending on the amount of computing power available on the network.

With more computing power, the hash ratio increases proportionally and requires even more powerful computing power to have any chance of solving the math puzzle within each cycle time.

This is the reason why cryptocurrency miners have graduated from using personal computers or CPU mining to using graphics processing units (GPUs) and now switching completely to custom built platforms using hundreds of ASICs to mine cryptocurrency .

These ASIC miners continue to evolve and use the latest chip technology to provide a hash rate that can increase the chances of mining Bitcoin or any other cryptocurrency. Depending on the hash rate, power consumption, the noise produced and profitability per day, ASIC miners such as the Bitmain Antminer S19 Pro, AvalonMiner 1166 Pro and WhatsMiner M32 are preferred among the crypto mining community today.

Whether it is releasing new tokens into the system or verifying and adding transactions to the public ledger in the form of blocks, the mining process becomes more difficult as more miners compete for the same.

Since the reward for mining a Bitcoin block is 6.25 BTC, it is quite lucrative from a monetary perspective and has encouraged many miners to increase their computing power by purchasing expensive ASIC miners.

Alternatively, those who would prefer to dedicate their existing computing capacity to earn smaller but consistent rewards prefer to join a cryptocurrency mining pool such as F2pool, Slush Pool or AntPool, and they like to combine resources and earn daily rewards for their contributions.

Steps in the cryptocurrency mining process

How do crypto mining pools work?

A cryptocurrency mining pool is a collection of miners who work together as one entity to increase their chances of mining a block and share rewards among themselves in proportion to the computing power contributed by them in successfully mining a block.

The mining pool operator manages activities such as recording the work done by each pool member, managing their hashes, allocating reward shares to each member and even the work to be done by them individually.

On the other hand, a mining pool fee is deducted from the rewards distributed to each member, which is calculated based on the pool sharing mechanism and depending on how these cryptocurrency mining pools share rewards, they can be of the proportional, pay-as-you-go type. sharing type or completely decentralized peer-to-peer (P2P) pool.

The interactions between individual miners_ mining pools_ and the Bitcoin protocol

In a proportional mining pool, miners who contribute their computing power receive shares until the time the pool succeeds in mining a block, which are then converted into rewards proportional to the number of shares received by each pool.

Pay-per-share pools differ slightly from proportional pools in the sense that each member can cash in the shares received daily, regardless of whether the pool was successful in finding a block.

Last but not least, P2P cryptocurrency mining pools are more advanced versions where the entire pool is integrated as a separate blockchain to prevent the operator or any single entity from cheating the pool members.

Regardless of the type of pool that is chosen, it is important to check if the crypto mining pool is profitable after analyzing the computing power required, electricity costs involved, the mining pool fee applicable and how often a crypto mining pool payment.

Usually, different cryptocurrency mining pools charge between 2% to 4% of the realized earnings, and most offer a daily payment mechanism at a predetermined time of the day.

For contributors, however, the cost of purchasing dedicated ASIC miners and the regular cost of electricity required to operate them must be carefully ascertained to understand whether crypto mining pools are profitable.

What are the different types of crypto mining pools and how to start mining a pool?

There are a number of famous cryptocurrency mining pools available for individual miners to join and start contributing to.

Binance, AntPool, F2pool, Pool BTC and Slush Pool are some of the best known cryptocurrency mining pools that have an exemplary track record in terms of operational efficiency and regular payouts made to pools.

In fact, Slush Pool has been responsible for mining over 1.3 million BTC since its inception, helping over 15,000 small individual miners collectively mine Bitcoin at a total hash rate accounting for 5-8% of the entire Bitcoin network.

Instead of participating in a Bitcoin mining pool, individual miners can also join in mining other cryptocurrencies such as Litecoin (LTC), Bitcoin Gold (BTG), Monero (XMR), ETH and Ethereum Classic (ETC) among others, by joining the right. mining rig.

Among Ethereum mining pools, Ethermine, 2Miners, F2pool, Nanopool and Ezil are some of the more established options for users to choose from, each offering a different network hashrate and consisting of hundreds to thousands of individual miners.

Choosing which cryptocurrency to start mining with depends on its price stability, the hash rate needed to consistently earn decent rewards and the mining platform’s fees which will be minus the overall earnings.

In addition to registering for a cryptocurrency mining platform, individual miners will need to have mining hardware in the form of one or more ASIC miners, mining software installed and a secure cryptocurrency wallet to store rewards and other crypto holdings for transaction purposes.

The more capital invested in advanced mining rigs or equipment, the brighter the chances of earning higher rewards, as long as the entire hardware is dedicated to the purpose of cryptocurrency mining.

Additionally, having a fast internet connection and uninterrupted power supply are essential to complete the work assigned by the mining pool at the fastest speed possible.

Pros and cons of a crypto mining pool

Crypto mining pools offer even smaller miners the opportunity to use their computing resources to earn regular income without having to invest heavily in developing a dedicated mining rig that can cost millions of dollars.

Periodic payments, clear and real-time visibility of the reward potential and benefit from the professional management of a pool operator are just some of the advantages of joining a crypto mining pool.

However, not all crypto mining pools are safe, as evidenced by Poolin, which recently announced it was suspending BTC and Ether (ETH) withdrawals due to liquidity concerns. Moreover, considering that crypto mining pools make money by deducting a mining fee from rewards earned from mining activities, the actual income for each pool is considerably lower than what is possible in the case of being a single miner.

What’s more, is that the equipment needed to run even mining operations can be very expensive and profits can be disproportionately affected by any increase in electricity or internet costs.

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