The era of solo mining is long gone. Today, the only way to mine cryptocurrencies is to join a mining pool. Nevertheless, many miners fail when choosing a pool due to a lack of understanding of the working principles, specifics, differences and other characteristics of mining pools.
The definition of a mining pool
A mining pool is a kind of server. Its main mission is to divide computer tasks into several subtasks. These are distributed among all members who are connected to the pool. Originally, mining existed thanks to processors. Their computing capacity was sufficient for autonomous cryptocurrency mining.
As the complexity of the network increased by attracting new members, the industry shifted towards video cards. CPU -based mining was relegated to oblivion due to its minimal profitability (then complete lack of profit).
Subsequently, the increased complexity of mining led miners to cease their activities. It is important to remember that a pool is not an entirely collective and evenly distributed mining operation. Rather, it is a division of labour, where each member makes a profit based on the effort (power) invested.
How does it work?
Contribution is valued using the concept of a “share,” which is part of the computational hash function used to sign a block. The task of the server is not only to distribute the “shares” but also to check their validity. The operation is validated when the “part” corresponds to the complexity values required for the signature of the block.
The reward received by the pool is distributed among all miners, depending on the number of valid “shares” transmitted (It depends on the reward method in each particular pool ). Additionally, the “share” that signed the block does not affect the final distribution of the reward.
Each of these servers is a company funded by the commissions charged to users. Mining pools may underestimate overall computing capabilities in order to make additional profits from “unaccounted power” (this is called “hidden commission” ). However, this kind of server instantly gets negative ratings, losing all members.
So technically, the device of a mining pool can not be called complex. This is a special server that distributes tasks. Also, the pool does not require complex configuration (if ready-made templates already exist). However, the crucial aspect that often proves to be an obstacle is attracting members. To do this, it is necessary to pay attention to the key points:
- effective advertising
- The reputation of the mining pool
- Advantageous conditions for members (minimum commissions and other privileges).
It is also best to keep in mind the “51% rule”, which poses a direct threat to centralization and makes it possible to attack any cryptocurrency. When this threshold is reached, the pool should eventually announce its liquidation, unless the collection of large capacities is intended for a specific purpose.
Mining Types and Reward Principles
There are three types of mining :
2. Collective (in pool );
The latter option stands out significantly because it does not require equipment, which is often categorized as an investment rather than a mining one. Solo mining is almost entirely a thing of the past. This is due to the growing complexity of networks and the unprecedented demand for mining digital currencies.
New “currencies” rely on solo mining, but as they grow and attract members, solo mining is quickly supplanted. Pool mining, with the pooling of capabilities, is the only way to be truly competitive in the industry.
One of the determining factors when choosing a server is the reward principle used on a particular resource. It can affect final earnings, increasing or decreasing potential income. There are over 20 reward principles, although the most popular and common are PPS and PPLNS. The simplest principle, PROP, loses ground and follows the path of extinction.
PPS or Pay Per Share is the reward principle that is considered to be the most promising for members. Each member receives income for each “share” sent when a block is found. The amount is calculated for the user by dividing the reward by the complexity of the network. While this distribution principle is the most profitable for miners, it is riskier for pool owners, hence higher commissions.
PPLNS – Pay Per Last N Shares is the principle that is considered profitable and does not include payments for each “share”. Payments are not made for finding a block, but rather for what are called “quarters” which represent specific time intervals. The principle is similar to PROP in many ways but differs in the “slow start” when calculating the reward.
The calculated capacity index will gradually increase to the maximum value (only when the maximum value is reached will payment be made). However, even if you disconnect from the mining pool, payments will be made until the calculated capacity drops to zero.
How to choose a good mining pool ?
Choosing a mining pool seems complicated for beginners, especially with the wide variety of servers available. First of all, it should be borne in mind that the pool must be financially profitable. This is the main and only crucial criterion. The following parameters will help you choose the most advantageous, safe and durable option:
- The hash rate. The capacity of a particular pool directly affects its potential for finding new blocks, and therefore member income. This is why the resources created among the first are the most popular.
Any new server, despite its characteristics, will not be able to attract the same number of members, and therefore will lose the power and efficiency of search blocks.
- The commission applied by the mining pool . This criterion cannot be called decisive, but it also affects the income from mining . Before choosing a server, do at least a cursory comparison of the different pools in terms of the commission applied by the mining pool . This can increase your income in the future.
It is not recommended to seek the minimum commissions. This is often an illogical approach when it comes to security and quality of service, but you shouldn’t choose resources with high fees either. This is not profitable from a financial point of view.
- The reward system. This is an important indicator that must be correlated with your ability to obtain the most favorable conditions. For example, with a pro rata distribution of profits, in case of low capacity, the income level will be low due to the negligible contribution.
The choice of the reward system will therefore be essential if it corresponds to the conditions (it is different for ASICs, farms or large centers, and it is chosen individually).
- The location. It is an important parameter. Some believe it is best to choose servers as close to the equipment as possible. This will provide a stable connection and minimal ping .
However, the importance of geographical proximity is secondary. Use the ” ping ” command with the server address to choose the best connection.
Today, anyone who wants to get into mining has to choose a mining pool. However, the decision should be made based on the above criteria. In conclusion, choosing your mining pool is definitely an important step in your journey to becoming a profitable miner!