What is a Mining Pool?
A mining pool is a network of shared processing power by cryptocurrency miners where the reward is split equally, yet also dependant on how much each member contributed to finding a block.
Mining pools came about because the difficulty of successfully mining a block had increased astronomically, sometimes taking years for slower miners to find a block. In response, miners pooled their resources together. While miners only receive a portion of the block reward, the consistent reward, although small, is better than a larger reward once a year.
The reward for successfully participating in a mining pool is a known as a share. A share is given when a member is able to present a valid proof-of-work.
There are many different mining pool methods and there can be hundreds or thousands of miners in a pool. Pools have the ability to determine share sizes based on the probability of a block being found. If a miner chooses a higher probability block, their share will be lower.
The Logistics of Pools
Mining pool schemes look like algebra problems. Each scheme has the same symbols. “B” stands for block reward minus the pool fee while “P” is the probability of generating a block. Some pools pay-per-share. This means that miners are paid simply for their contribution to finding a block. Other pools are “proportional” to the amount of shares that are given out by the pool.
There is also multipool mining. Multipools constantly switch between altcoins depending on the coin that is most profitable to mine at that moment. An algorithm is used to calculate which coin is the most profitable. The algorithm primarily factors in the price of the coin and the block time to determine which is the most profitable.
In multipool mining, because you’re switching between coins, a payment system must be agreed upon. Generally, multipools can automatically exchange coins into a more mainstream coin like Bitcoin. In other words, multipools mine the most profitable coins and then exchange them into the most popular coins, providing a lucrative mining experience.