All You Need to Know About Mining Pools and Their Functionality

June 26, 2019 Published by: Minesh Doshi

What-are-Mining-Pools-and-How-They-Work

Blockchain technology has revolutionized the online transaction process worldwide. Here we are going to know more about Blockchain mining pools, their functionality, advantages, and disadvantages.

Let’s start with the obvious question- What are mining pools?

Technically, a mining pool is a group of miners who joint their computational resources over a network to mine a cryptocurrency. Now, the computational power is directly related to the mining difficulty of a cryptocurrency. In other words, as the mining difficulty increases, the computational power to mine it also increases. This increase in computational power can be too costly to handle for a solo miner. Higher energy cost and the need to implement advanced hardware also increase the miner’s burden.

There, the concept of a mining pool lends a helping hand. Miners collectively make a pool to limit the cost of mining activity without hampering the performance.

Key Functions of Blockchain Mining Pool

A mining pool works as a coordinator for members. Just like a lottery pool, here you make a team with people to increase odds of winning, but as you have agreed to share your winning, the amount you get remains less.

Here are the major functions of a mining pool:
  • Taking the hashes of pool members
  • Looking for block rewards through pooled efforts of available computational power
  • Recording the work performance of every pool member
  • Assigning the rewards to each participant in proportion to the work performed after a proper verification
Miners can alternatively run the mining pool software to mine differently while performing hashes for the pool.

Work is assigned in two ways to each pool member:

mining pool

In Traditional method, the pool assigns minor work unit by covering the entire range of nonce 0-4,294,967, 295, the number that blockchain miners are computing for. Once the miner finishes their work, they ask for a new unit work to be assigned with a different extra Nonce (or pay-out address).

In a modern method, pools are following a setting where the miner can change details of the transaction through computing the Merkle root. This method reduces a load of mining pools significantly. Here, the miners can do as much work as they want without requiring a new assignment from the mining pool. This methodology ensures that the two members don’t have the same range, just like no two gold diggers should take the same piece of land.

Also Read: Blockchain & IoT are Evolution or Revolution

Common Mining Pools Payout Schemes

Here we mention a few prevalent payout schemes-

PPS- The Pay-per-Share (PPS) method allows an instant, guaranteed payout for each share based on accepted shares that are solved by the miner. The miners can withdraw their payout instantly from the existing balance.

PROP- Proportional (PROP) method offers a proportional distribution of the reward, among all the workers, based on the number of shares each of them is found.

SMPPS- The Shared Maximum Pay Per Share (SMPPS) method is like a pay-per-share (PPS) but the limit is that it cannot pay more than the earning of the mining pool.

ESMPPS- The Equalized Shared Maximum Pay Per Share (ESMPPS) method is like a Shared Maximum Pay Per Share (SMPPS) but distributes equal and fair payment among all the miners.

PPLNS- The Pay Per Last N Shares (PPLN) method, which offers a payment to the miners as a 0% of shares, that they contribute to the total shares. PPLN is like a proportional method, but instead of counting the number of shares in the round, they look at the last N shares.

Here it is necessary to mention that the mining pool does not allow any cheating. It sends the miners the template of the block in which the work is assigned. The block is the nonce that satisfies the proof-of-work difficulty, and it is valid only in combination with the work template.

The block template combination also includes the coinbase transaction and transfers the reward to the pool operator, it is impossible for the miner to steal the reward.

Bitcoin Mining Pool Software A Bitcoin mining Pool hardware handles the actual Bitcoin mining process, but as well as bitcoin mining pool software is equally as important.

For solo miner: If you are a solo miner, the software connects your bitcoin miner to the blockchain mining pool.

For mine with Pool: If you mine with pool, the software will connect you with your mining pool.

Pros and Cons of Mining Pools

Mining pools come with a few advantages and disadvantages. When you want to join the mining pool as a cryptocurrency miner, you can consider the following pros and cons of a mining pool.

Advantages
  • Income is more stable as compared to solo mining
  • Reduced mining costs because of sharing
  • Capability of generating more income over the period
Disadvantages
  • Interruptions may occur frequently
  • Rewards are shared that reduces your income
  • Somewhat unfavorable and complex reward structure

It is, therefore, necessary to understand how mining pool and reward system work before joining the one. You can consult a reputed mining portal development company to get proper insights about mining pool software.

Concluding Lines

The main work of the mining pool software is to deliver the mining hardware work to the bitcoin network and receive the complete work from other miners on the network and relay information back to the blockchain. It is also used to connect bitcoin miners to the blockchain and as well as your Bitcoin mining pool if you are part of it.

Semaphore Software is committed to building advanced mining portal development solutions to meet the complex needs of your Blockchain models. We assure you to provide excellent and secure user experience with a 24/7 support. To know more about mining pools or our services, simply email us at info@semaphore-software.com.