Though it’s no longer new to many, there are still concepts about cryptocurrency that confuses a lot of people. This can be daunting for someone who is looking to get into cryptocurrencies, especially if such concepts could mean the success or failure of their ventures. Chief among these concepts is Bitcoin mining pools. To help you out, we’ve summarized the basics of bitcoin mining pools and how they can improve your chances at succeeding in this very competitive landscape.
The Bitcoin Mining Process
Before we can delve into how mining pools work, we first need to understand how the actual Bitcoin mining process works. There are two functions involved in cryptocurrency mining: releasing the new cryptocurrency into the system and adding the resulting transactions into the blockchain public ledger. Think of it as processing gold, or other precious metals, and eventually putting it into the market.
Bitcoin Core (BTC) mining basically requires you to solve or “mine” a block before others can, much like digging up gold from underground. This is done by using a computer that has special mining hardware and software to manage the entire mining process. Successfully mining a block requires a huge amount of processing power and electricity. Whoever has the most processing power gets to solve the block quicker.
This makes the whole process very competitive, in which whomsoever successfully “mines” a block gets to keep the block rewards and the transaction fees associated with it, or in connection with the gold analogy, whoever mines the gold gets to own it.
In recent years, there has been an incredible amount of computing power coming from elsewhere online, making it difficult for a solo miner to solve a block on their own. In order to compensate for this, the concept of mining pools was created.
What is a Bitcoin Mining Pool?
In simpler terms, a mining pool puts together the connections of multiple miners to pool their processing power together, so they can mine at a higher overall computing power, improving their chances at successfully mining a block. Think of it in terms of lottery tickets. If you had one lottery ticket out of a pool of a thousand, your chances of winning the prize is one in a thousand, but if you have a hundred tickets, then your chances of winning improve significantly to one in ten.
It can be difficult to procure 100 tickets, however, so what you can do is team up with other people to secure the hundred tickets and split the winnings evenly amongst yourselves. If you had 10 people to work with, for example, you can have them buy 10 tickets each, and you can still reach that one in ten chance of winning, despite each person only buying 10 tickets. Though this means you’ll be earning less compared to when you were mining solo, your chances of getting the block improve significantly.
How do Mining Pools Work?
A mining pool basically acts as the coordinator for its pool members. Its functions include managing the members’ hashes, recording the amount of work each member contributes to the pool, and assigning reward shares amongst its members. Some pools may also charge each individual member a fee, so they can use it.
There are two ways a pool can do its work. The first method involves assigning each pool member an individual work unit in the specific blockchain the miners are computing for. Once that pool member finishes their assigned work, a new unit is assigned to them. The second method allows each individual miner the amount of work they want to put into the pool and which unit they’d want to work on.
This method ensures that no two miners are working on the same area at the same time, much like two miners being assigned to two different spots to improve their chances of finding gold. On top of this, it’s also possible to have pools of mining pools, where multiple mining pools work together to further enhance the chances of solving a block.
As cryptocurrency mining becomes more popular, the use of high-speed devices is becoming more common, making it very difficult for an individual miner to successfully profit if their devices can’t match up to the competition. Mining pools give individuals a fighting chance at a profit in an increasingly competitive world.