What is a cryptocurrency mining pool? – coin telegraph

A community-based approach to crypto mining, mining pools let miners combine their computational resources for a better chance at winning rewards.
In the early days of bitcoin (BTC), crypto enthusiasts needed only a basic personal computer with an internet connection to generate new BTC tokens through a distributed computing process called mining.
However, with more people chasing the same number of block rewards, the process of mining bitcoin has become more challenging over time. In fact, the amount of rewards will be progressively halved every four years, making it less profitable for individual miners, who will need to allocate more computational resources over time.
Available on blockchain protocols that employ a proof-of-work (PoW) consensus mechanism, this mining process requires the deployment of application-specific integrated circuits (ASICs) in the form of large rigs to complete the complex nature of mathematical problems within the time required to mine a block.
Due to the increasing difficulty of the mining algorithm and the diminishing rewards for mining a block over time, it has become impossible for a single piece of personal computing equipment to successfully mine a block.
This has brought to the fore the concept of a cryptocurrency mining pool, where individual miners or users come together and pool their computational resources to improve their chances of mining a block and sharing the rewards received between them.
In existence since 2010, when Slush Pool was first created as a bitcoin mining pool, there are now many popular mining pools to choose from for cryptocurrencies such as Ether (ETH), Zcash (ZEC), Bitcoin Cash (BCH), Bitcoin SV (BSV) and more.
Complete with its own dashboard that provides status on aspects such as mining hardware status, current hash rate, estimated income and other parameters, mining pools provide crypto users with an opportunity to continuously participate in the mining process of a particular cryptocurrency and earn regular rewards in proportion to the computing power contributed.
Before we get into what a cryptocurrency mining pool is and how one can join, let us see how cryptocurrency mining happens and understand the major difficulties involved.
First, for any PoW blockchain protocol, the process of mining its native token involves solving math problems using computing power, where the correct answer is represented as the block’s hash number, and rewards are awarded to the entity with the fastest solution.
These rewards are presented in the form of native tokens, with the mining process programmed in such a way that a new transaction block is mined after a specific period of time. In the case of bitcoin, this time is around ten minutes and the complexity, or hash rate, is adjusted based on the amount of computing power available on the network.
With more computing power, the hash rate increases proportionally and even more powerful computing power is needed to have any chance of solving the mathematical puzzle within each cycle time.
This is why cryptocurrency miners started out using graphics processing units (GPUs) from personal computers or CPU mining and are now shifting to entirely custom-built rigs using hundreds of ASICs to mine cryptocurrencies.
These ASIC miners are constantly evolving and using the latest chip technology to provide a hash rate that can increase the chances of mining bitcoin or any other cryptocurrency. Based on hash rate, power consumption, noise generated and profitability per day, ASIC miners such as Bitmain Antminer S19 Pro, AvalonMiner 1166 Pro and WhatsMiner M32 are preferred among the crypto mining community today.
Whether it is issuing new tokens into the system or verifying and adding transactions to the public ledger in the form of blocks, the mining process gets harder as more miners compete for it.
Since the reward for mining a bitcoin block is 6.25 BTC, this is quite attractive from a monetary perspective and has prompted many miners to increase their computing power by purchasing expensive ASIC miners.
Alternatively, those who want to dedicate their existing computing power to earning small but consistent rewards prefer to join cryptocurrency mining pools such as F2pool, Slush Pool, or Antpool, and they prefer to pool resources and earn daily rewards for their contributions.

A cryptocurrency mining pool is a collection of miners who work together as a unit to increase their chances of mining a block and share rewards among each other in proportion to the computing power they contributed to successfully mining a block.
The mining pool operator manages activities such as recording the work done by each pool member, managing their hashrate, allotting reward shares to each member, and even the work they do individually.
In turn, a mining pool fee is deducted from the rewards distributed to each member, which is calculated based on a pool-sharing mechanism and depending on how these cryptocurrency mining pools share the rewards, they can be of a proportional type, pay-per-share type, or a fully decentralized peer-to-peer (P2P) pool type.

In a proportional mining pool, miners who are contributing their computational power receive shares until the pool succeeds in mining a block, which are then converted into rewards in proportion to the number of shares each pool member receives.
Pay-per-share pools differ slightly from proportional pools in the sense that each member can redeem the shares received on a daily basis, regardless of whether or not the pool was successful in finding a block.
Last but not least, P2P cryptocurrency mining pools are a more advanced version where the entire pool activity is integrated as a separate blockchain to prevent the operator or any single entity from defrauding pool members.
No matter which type of pool is chosen, it is important to check whether the crypto mining pool is profitable after analyzing the computing power required, the cost of electricity involved, the applicable mining pool fees and how often the crypto mining pool pays out.
Typically, individual cryptocurrency mining pools charge between 2% and 4% of actual earnings, with most offering a daily payment mechanism at predetermined times of the day.
However, for contributors, the cost of purchasing dedicated ASIC miners and the regular cost of electricity required to power them needs to be carefully factored in to understand whether crypto mining pools are profitable or not.
There are several reputable cryptocurrency mining pools available for individual miners to join and start contributing.
Binance, Antpool, F2pool, Pool BTC and Slush Pool are some of the most well-known cryptocurrency mining pools that have an exemplary track record in terms of uptime efficiency and regular payouts to pool members.
In fact,

Slush Pool has been responsible for mining over 1.3 million BTC since its inception, enabling over 15,000 small individual miners to collectively mine bitcoin at a higher hash rate, which accounts for 5-8% of the total bitcoin network.
Instead of participating in bitcoin mining pools, individual miners can also engage in mining other cryptocurrencies such as Litecoin (LTC), Bitcoin Gold (BTG), Monero (XMR), ETH and Ethereum Classic (ETC) by connecting to the right mining platform.
Among Ethereum mining pools, Etheremine, 2Miners, F2Pool, NanoPool, and Azil are some of the more established options for users to choose from, each offering a different network hash rate and consisting of hundreds to thousands of individual miners.
Choosing which cryptocurrency to start mining depends on its price stability, the hash rate required to earn consistently good rewards, and the mining platform’s fees which will be less than the total earnings.
In addition to registering for a cryptocurrency mining platform, individual miners will need mining hardware in the form of one or more ASIC miners, installed mining software, and a secure cryptocurrency wallet to store rewards and other crypto holdings for transaction purposes.
The more capital invested in an advanced mining rig or equipment, the higher are the chances of earning higher rewards, provided the entire hardware is dedicated for the purpose of cryptocurrency mining.
Additionally, it is essential to have a fast internet connection and uninterrupted power supply in order to perform the assigned work by the mining pool operator as fast as possible.
Cryptocurrency mining pools offer even small miners the opportunity to use their computational resources to earn regular income without making huge investments in developing a dedicated mining rig, which can cost millions of dollars.
Periodic payouts, clear and real-time visibility of reward potential and benefiting from the professional management of the pool operator are some of the advantages of joining a crypto mining pool.
However, not all crypto mining pools are safe, as demonstrated by Poolin, which recently announced it was suspending BTC and Ether (ETH) withdrawals due to liquidity concerns. Furthermore, given that crypto mining pools make money by deducting mining pool fees from the rewards earned from mining activities, the actual earnings for each pool member are much lower than would be possible in the case of being a sole miner.
What’s more, is that the equipment needed to scale up mining pool operations can be very expensive and any increase in electricity or internet costs could disproportionately affect profits.
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