How Do Mining Pools Work? | Mining Guide | Notum

Intro

In case, you’ve decided to mine and to become a proud miner, you need to get through some basics, just to know better the field you’re going to till.  

What Is a Mining Pool?

First, a mining pool is a team of cryptocurrency miners who share their processing power and the block reward, so it’s group work and collaboration. As they say, when we cooperate, everybody wins. The processing power of your computer makes money for you, but it should be truly significant. The block rewards are shared proportionally — the more you give, the more you receive in the end. 

Now, it’s time to make some easy steps towards your bright mining future:

1. Choose an appropriate mining pool and sign there up. 
2. Download and install special mining pool software.
3. The software interacts with your mining pool, it is linked to the mining pool’s cryptocurrency node.
4. Your PC helps to mine, sharing a spare computer power to the pool’s PoW (Proof-of-Work) system.
5. Once the pool gets an opportunity to add a block to the blockchain and earns a reward, the sum of the block plus a transaction fee, it should be shared between miners equally and based on one’s personal contribution. 
6. From time to time, the pool sends crypto to your wallet address — you can get it in the cryptocurrency you helped to mine or convert to another form, and then the converted sum is transferred straight to you. 

If you don’t have an opportunity to share a lot of computing power, it’s not an excuse not to be a part of the game. There are many possible ways for you to become a miner, but if you want to double-check and understand if it’s beneficial or not, you can use a mining calculator that will show you how profitable mining of a certain cryptocurrency would be, and how long it will take to mine your first block.

Pool Mining Rewards

The pivotal point of all the reward methods is that miners are paid a proportion of the sum made by the pool, within so-called mining duration or mining round.

Methods for calculating payouts really depend on the mining pool you use. Let’s have a brief look at that variety:

Method 1 

It’s called Pay-Per-Share (PPS), and that means miners earn a guaranteed reward based on the probability that the pool mines a block. No matter if the pool had performed better or worse than it was expected, miners will get the income based on their contribution to mine a block. Examples: BTCC Pool and Luxor. 

Method 2

Here’s another one named Full Pay-Per-Share (FPPS) which means it’s almost the same as the previous one, but the income could be higher thanks to a transaction fee already included in the payment scheme. Examples: BTC.com and Poolin. 

Method 3 

The third one is called Pay-Per-Last N Shares (PPLNS) pays your reward considering the last number (N) of shares contributed. No matter how many shares were from your side, the last, more recent at the time of block discovery, will be counted. Examples: Zcash, Monero, and Ravencoin.

Method 4

This one, known as Shared Maximum Pay-Per-Share (SMPPS) is similar to the PPS method, but rewards are based on a total earned by the pool in general, so you can’t get more than the pool gained. Examples: Neighbourhood Pool and Whalesburg Mining Pool. 

Method 5

In the case of Recent Shared Maximum Pay-Per-Share (RSMPPS) rewards are paid equally considering the total number of contributed shares during the mining pool, but with more focus on recent hash rate shares. The closer contributed shares to the discovery of a block, the bigger reward you will get. Examples: Itzod Mining Pool. 

Method 6

This Score Based System (SCORE) reward system pays you according to your proportion of hash rate provided, but more recent shares are paid higher. If your hash power was provided closer to the time of the winning block, it gets a higher reward. Examples: Multipool and Slush Pool. 

Method 7

As for Double Geometric Method (DGM), it is a link between the PPLNS method and a geometrically calculated reward that balances payouts depending on the duration of the mining. This provides smaller mining rewards during a short duration and bigger payouts for a longer duration. Examples: Merge Mining Pool and Golden Nonce Pool. 

Method 8

This one is called PROP because it’s shared proportionally, this method considers to be the easiest. You get a reward for the shares you provide in proportion to all shares provided during the mining round. Examples: BSOD Pool, Mining Dutch and CoinMinerz. 

Method 9

Here’s a PPS+ method which stands for a mixture of PPS and PPLNS. The pool rewards the miners due to each varified share they submit – the pool is hiring miners, and the pool pays them. Examples: Luxor,  Cruxpool, and Antpool.

Method 10

Last but not least is called POT, a contraction of Pay On Target and means that you are paid for the difficulty of work returned to the pool instead of being paid for the difficulty of work served by the pool. Examples: Ozcoin.

Mining pools are spread around the crypto world, they are a nice opportunity for you to get paid for simply sharing your hashing power. Thus, you support the whole system and become a participant of something bigger, as more miners create a much stronger and wider community. 

Mining Pools Mentioned in the Article

Mining Pools Reputation 

Reputation is really important when we are talking about mining, as well. There are many scam pools that occur from time to time, but they disappear quite quickly as the miners’ community defines them and reports about those nasty scammers. How to escape an unpleasant experience? Here are some tips for you: 

1. Do careful research on the Net, there is approved information about different pools in there with charts and feedbacks from other miners. 
2. Be aware of pools or mining services that are owned and operated by anonymous or individuals with a shady reputation.
3. Seek for transparency, as the availability of videos, pictures, or recordings of their hardware, and hash rate data can be a guarantee that the pool is legit. 
4. Sometimes guaranteed profits could be just a trick to ‘catch’ you. 
5. Pools should have clear methods for withdrawing payouts or closing rental contracts.