A mining pool is a collaborative group of cryptocurrency miners who combine their computational resources to increase the probability of mining a new block of transactions on a blockchain network. ^[1]

History

The first mining pool, Slush Pool, was launched in 2010. Prior to mining pools, most miners used GPUs (mining directly on PCs). However, as the difficulty of mining increased, it became more difficult and expensive for individual miners to be profitable. Slush's Pool, introduced the revolutionary concept of collaborative mining, enabling miners to combine their computational power and share the resulting rewards. Mining pools quickly became popular, and by 2013, they accounted for the majority of the hashrate on the Bitcoin network. The largest mining pools today have hash rates that are comparable to those of entire countries. ^[2]

In 2014, GHash.IO, a Bitcoin mining pool, briefly exceeded 51% of the Bitcoin network's hashrate. This raised concerns about the potential for a single entity to control the network and prompted discussions about the risks of mining pool centralization. It encouraged the development of PoS-based pools instead of traditional mining pools. As cryptocurrencies like Cardano (ADA) and EOS (EOS) adopted PoS and DPoS mechanisms, pools emerged to support these networks, allowing users to participate in consensus and earn rewards.^[2]

Overview

In a mining pool, a group of miners act as a single miner on the blockchain network. If the mining pool successfully finds a new block and receives a reward, the reward will be shared among the members of the pool. The rewards are distributed, according to the amount of each individual’s processing power during the mining process. The more hashing power provided to the pool during the mining round, the higher the share received for block rewards won by the pool. Mining pools are especially beneficial for individual miners with limited resources, as they provide a steadier and more predictable outcome compared to solo mining. The more resources the group pools in, the higher the chances of them solving the math problem to mine a new block. ^[1][8][5][6]

In mining pools, contributions from participants are represented by their hash rate, which signifies the computational power they contribute. This hash rate is a measure of how many attempts a participant can make per second to find a new block and is usually measured in hashes per second. When the pool successfully discovers a new block, the associated block reward is given to the pool. The pool manager or coordinator then deducts a fee and distributes the remaining reward among the participants based on their respective contributions. Mining pools are especially common in networks that utilize a proof-of-work (PoW) consensus mechanism. In certain mining pools, miners may need to provide proof of their work to claim their share of the reward. The reward distributed to miners is typically in the form of the mined cryptocurrency. To be a part of a mining pool, miners usually have to pay a small fee to the pool manager or coordinator. ^[3][4][7]

Examples of Mining Pool

Slush Pool

Also formerly known as Bitcoin.cz Mining, is the oldest mining pool, and the first known to be publicly available. Slush Pool was announced on November 27, 2010 under the name Bitcoin Pooled Mining Server and operated on a share strategy that involved an artificially low difficulty method that has since been determined to be vulnerable to cheating. Although it has operated for around a decade, it remains one of the biggest and most popular mining pools to date.
SlushPool also allows a politically neutral voting system. All voters have to do is direct their hash rate towards their favorite protocol proposals to vote. In other words, SlushPool utilizes a community-based governance framework that gives participants some level of influence over the development of the platform. Slush Pool’s users get to vote on upgrades and future developments. ^[16]

F2Pool

F2Pool was established in 2013 and is known for its multilingual, user-friendly interface and broad international user base. It supports Bitcoin, Ethereum, Litecoin, and other cryptocurrencies. F2Pool has a significant share of the Bitcoin hashrate, and is favored for its consistent and reliable payouts, and it provides diverse payout options to accommodate different miner preferences. With a substantial hashrate in the cryptocurrencies it supports, F2Pool plays a significant role in network security and stability. It actively engages with the cryptocurrency community and offers cloud mining services as well. ^[10]

BTC.com

BTC.com operates a popular mining pool that is considered medium size. Mining servers are located in the EU (Germany), the United States and China. BTC.com supports mining only multiple cryptocurrencies that include Bitcoin, Ethereum, Litecoin, Decred and Nervos CKB.
BTC.com uses the method of rewarding miners known as FPPS (Full Pay Per Share). FPPS calculates a standard transaction fee within a given period, adds it to the block reward (currently 12.5 BTC) and then distributes the whole to miners as with traditional PPS (Payment Per Share).^[12]

Antpool

Antpool is one of the most well-known mining pools in the Bitcoin (BTC) and Bitcoin Cash (BCH) mining communities. Antpool is known for its reliability and sizeable hashrate. Antpool allows multiple miners to combine their computational power to mine cryptocurrencies more effectively. When a miner in the pool successfully mines a block, the reward is distributed among all the miners in the pool based on the amount of computational power they contributed.^[11]

Braiins Pool

Braiins Pool is formerly known as Slush Pool is one of the earliest Bitcoin mining pools, founded in 2010 by Marek Palatinus. It's known for its transparency and user-friendly features, and it has a long-standing reputation in the mining community. Slush Pool lets miners mine ZCash and Bitcoin easily. The platform offers robust security to keep your data secure on the cloud. The platform is supported by both Android and iOS and is one of the largest mining pools equipped with sending notifications if some issues arise. Slush Pool has API functionality to pull custom data from the system. ^[14]

Poolin

Poolin is a prominent cryptocurrency mining pool that supports a wide range of cryptocurrencies, including Bitcoin, Bitcoin Cash, Litecoin, and more. It offers various payout options to cater to miners' preferences, is accessible to a global user base, and is compatible with different mining hardware. Beyond mining pools, Poolin provides additional services like cloud mining and cryptocurrency wallet solutions. It actively engages in cryptocurrency community discussions, contributing to network decisions and governance.^[12]

ViaBTC

ViaBTC operates mining pools for Bitcoin, Bitcoin Cash, and Litecoin, etc. It has a substantial hashrate and provides multiple payout options to cater to different miner preferences. ViaBTC is known for its user-friendly platform and has a global user base. Additionally, the pool is compatible with different mining hardware and offers various services beyond mining pools, such as cloud mining and cryptocurrency exchange services. ViaBTC actively engages with the cryptocurrency community, contributing to discussions on network upgrades and governance. ^[12]

Ethermine

Ethermine is a mining pool, specializing in Ethereum (ETH) mining. Ethermine was the first and official Ethereum mining pool. However, there was a time when Ethermine did not accept new users due to high workload and only worked with old clients. As a result, many new miners were compelled to switch to solo mining, as there was no other alternative to this pool at that time. It contributes a significant portion of the Ethereum network's hashrate, providing miners with reliable and frequent payouts. Ethermine offers multiple payout options and maintains a user-friendly interface, making it accessible to both novice and experienced miners. The pool actively engages with the Ethereum and cryptocurrency communities and offers monitoring tools to help miners track their performance. ^[13][17]

How Mining Pools Work

1. Joining the Pool: Individual miners or mining rigs connect to a mining pool by installing specific mining software and configuring their equipment to point to the pool's mining server.

2. Task Distribution: The mining pool's server assigns mining tasks to connected miners. These tasks involve attempting to find a valid solution to the cryptographic puzzle required for block validation.

3. Combined Hashpower: Miners in the pool collectively contribute their computational power, often referred to as hashrate, to solve the puzzle. This combined hashrate significantly enhances the pool's chances of successfully mining a block compared to solo mining.

4. Reward Distribution: When the pool successfully mines a block, the rewards are distributed among the participating miners. The distribution may be based on factors such as the miner's contributed hashrate or the mining shares they generated. Common reward distribution methods include proportional, pay-per-share (PPS), and others.

5. Pool Operator Fees: Most mining pools charge fees to cover operational expenses and generate profits for the pool operators. These fees are typically a percentage of the rewards distributed to miners.

Mining Pool Methods

Pay-Per-Share (PPS) Pool

In PPS pools, miners receive a fixed payout for each share they contribute, regardless of whether the pool successfully mines a block. This provides miners with a consistent income, but the pool operator takes on the risk of variable block rewards. PPS pools typically charge higher fees than other types of pools.^[9]

Proportional (PROP) Pools

In proportional pools, miners are rewarded in proportion to their contributed hash power. Miners receive a share of the block reward based on the number of valid shares they submit. If the pool mines a block, the rewards are divided among miners according to their contributions.^[9]

Pooled Mining Pools

Pooled mining pools combine miners' hashrate to increase their chances of mining blocks. Miners are rewarded proportionally to the shares submitted. This reduces the ability to cheat the mining pool system by switching pools during a round, to maximize profit. These pools are among the most common and offer consistent payouts. ^[8]

Solo Pools

Solo pools are a variation where miners contribute their hashrate, but each miner is treated as if they are mining solo. Rewards are distributed solely to the miner whose share leads to a block's discovery. Solo pools offer a higher reward when a block is found but can result in long periods without payouts.

Pay Per Last N Shares (PPLNS)

This is a payout method used by some cryptocurrency mining pools to reward miners for their contributions to the pool's mining efforts. PPLNS is designed to incentivize miners to stay in the pool for longer periods by considering their recent mining performance rather than their historical contributions.^[2][6]

Decentralized Pools

Decentralized pools, also known as P2P pools, operate without a central server. Peer-to-peer mining pool (P2Pool) decentralizes the responsibilities of a pool server, removing the chance of the pool operator cheating or the server being a single point of failure. Miners work on a side blockchain called a share chain, mining at a lower difficulty at a rate of one share block per 30 seconds. Once a share block reaches the network target, it is transmitted and merged onto the blockchain. Miners work together to validate blocks and distribute rewards.

Benefits

1. Consistent Income: Miners in a pool receive more regular payouts, providing a stable income stream compared to solo mining, where rewards can be infrequent.

2. Reduced Variance: Mining pools minimize the variance in mining rewards. Miners receive smaller, more frequent payouts, helping to offset the unpredictability of solo mining.

3. Lower Hardware Requirements: Joining a mining pool enables miners with less powerful hardware to participate effectively in the mining process.^[8]

Mining pool versus Cloud mining

Whereas a mining pool refers to a joint group of cryptocurrency miners who combine their computational resources over a distributed network to increase their chance of finding a block, cloud mining, on the other hand, outsources computing power to mine cryptocurrency renting from a major software company situated anywhere in the world instead of buying high-cost computers.

Cloud mining only applies to proof-of-work (PoW) systems such as Bitcoin and the original Ethereum blockchain that are heavily dependent on high computational force. Moreover, cloud mining does not apply to proof-of-stake (PoS) systems, and therefore validating new blocks isn’t dependent on sheer computing force but on the number of coins locked up inside the network.^[15]