what is the cryptocurrency mining pool? how does it work?

The oldest currency in the world, physical gold, was dug from the earth through the process of gold mining. It will find hidden gold that is not yet available. Successful mining can enable a single digger or mining company to own gold.

Cryptocurrency mining works similarly, as virtual coins can be discovered digitally using computer programs. A total limit of 21 million Bitcoins is set in the Bitcoin system.

All these bitcoins are located in the blockchain system. Most have been mined or "mined" and owned by different participants, while the rest are being mined and will eventually become available.

Understand the mining process

Cryptocurrency mining involves two functions: publishing new cryptocurrencies into the system (similar to gold discovery), and verifying transactions and adding them to the blockchain public ledger. It is executed by a computer connected to the Internet, which is usually equipped with special mining hardware equipment and software programs to control and manage the mining process.

Encryption mining is a computationally intensive, similar to the computational process of solving difficult problems, requiring high processing power and high power consumption. The miner who solves the puzzle first puts the next block on the blockchain and gets a reward. Rewards include making miners the owners of newly issued bitcoins or receiving fees associated with transactions executed in the block.

The configuration of the cryptocurrency mining process is: if there are more miners working, the difficulty level will rise, and the decrease in the number of miners will reduce the difficulty level. Rewards make mining a profitable and profitable activity. As more and more miners try to get a share of the pie, finding new blocks becomes computationally more difficult and requires more computing power. For a single miner, this is usually impractical and too expensive.

Pool resources: let's mine together

Enter the mining pool, which is a group of miners. Compared with a single miner, these miners look for more opportunities at the group level. Through such a pool, miners combine their respective computing resources with those of other members, thereby enhancing joint processing capabilities and helping to achieve the desired output faster.

For example, a gold prospector who can dig 100 square meters of land in a day will take 100 days to explore a hectare of land for gold mining. Combining 100 gold prospectors, it only takes 1 day to complete the work. Assuming that all people work together to explore the land allocated to them, the gold found can be evenly distributed to all 100 miners.

Similarly, one person can combine nine mining equipment, each of which produces 335 (MH/s) mining power per second to produce a combined output of approximately 3GH. The output speed is faster, and there are better opportunities to discover cryptocurrencies.

However, this kind of concentrated work with better output and higher opportunities comes at a price. Compared with the sole ownership of the rewards obtained through separate mining, the rewards obtained through joint mining need to solve the problem of distribution among the various pool members.

Functions of the mining pool

The mining pool is essentially the coordinator of the pool members. These functions include managing the hash value of pool members, finding rewards by merging available computing power, recording the work performed by each pool member, and assigning reward shares to each pool member in proportion to the work performed after proper verification.

The mining pool may also charge a certain fee to each member miner.

The work of each pool member can be distributed in two ways. The traditional method assigns a work unit to the members, which is composed of a specific range of random numbers, which are the numbers that the blockchain miners are calculating. Once the pool members have completed the work within the specified range, they will request the assignment of a new unit of work.

The second mining method allows pool members to freely choose their favorite jobs without having to allocate tasks in the mining pool. This method ensures that no two members are in the same range, just as no two gold prospectors are exploring the same land.

How the mining pool distributes rewards

After successfully identifying the block hash, you will receive a reward from the mining pool, and then share it according to the mining pool share mechanism. The share describes the contribution of a particular member's computer to the mining pool.

There are two ways: accept and reject. The acceptance method shows that the work done by the members of the mining pool has made a huge contribution to the discovery of new cryptocurrencies, and these have been rewarded.

Rejected methods represent work that does not contribute to the discovery of the blockchain, so no payment (reward distribution) is required. Even if the member’s computer successfully performed the work, the late submission of it for the specific block constitutes a condition for rejection.

Pool members will be rewarded based on the share they accept to help discover new blocks. The share has no actual value, it is just a calculation method that can keep the reward distribution fair.

According to the accepted shares, members can use different methods to get rewards, these methods include:

Payment per share (PPS): Only based on the accepted shares provided by pool members allow instant payments, and these members can immediately withdraw income from the existing balance of the mining pool.

Proportion (PROP): At the end of the mining round, the reward provided is proportional to the share of the member relative to the total share in the pool.

Shared Maximum Payment Per Share (SMPPS): A method similar to PPS, but limits the spending to the highest amount already earned by the shared pool.

Equilibrium shared maximum payment per share (ESMPPS): A method similar to SMPPS, but the payment is evenly distributed among all miners in the Bitcoin mining pool.

Other variants include the Dual Geometry Method (DGM), the most recently shared maximum payment per share (RSMPPS), the highest paid payment with the latest return (CPPSRB), and Bitcoin combined mining (BPM).

Before deciding to join a specific mining pool, miners should pay attention to how each pool distributes rewards to pool members and the fees (if any) they charge. Generally, mining pools may charge a pool fee of 1% to 3%.

Conclusion

With the support of high-speed equipment compatible with home computers, mining has become more and more popular, and the opportunity to actually profit from a single mining is diminishing. Most people choose to join a mining pool, which allows them to obtain a high probability of limited profit, rather than a low probability of high profit.