In the early days of Bitcoin (BTC), crypto enthusiasts only needed a basic personal computer with an Internet connection to generate new BTC tokens through a distributed computing process known as mining.
However, with more people chasing the same number of block rewards, the Bitcoin mining process has become more difficult over time. In fact, the quantum of rewards will be progressively halved every four years, making it less rewarding for individual miners, who will have to allocate greater computational resources over time.
Available on blockchain protocols that employ a proof-of-work (PoW) consensus mechanism, this mining process requires the deployment of application-specific integrated circuits (ASICs) in the form of large teams in order to complete the complex nature of the problems. math in the time needed to mine a block.
With the difficulty of the mining algorithm increasing and the rewards for mining a block decreasing over time, it has become impossible for a single personal computer to successfully mine a block.
This has brought the concept of a cryptocurrency mining pool to the forefront, where individual miners or users come together and pool their computational resources in order to improve their chances of mining a block and share the rewards received with each other.
In existence since 2010, when Slush Pool was formed as the first Bitcoin mining pool, there are now many popular mining pools for cryptocurrencies such as Ether (ETH), Zcash (ZEC), Bitcoin Cash (BCH), Bitcoin SV (BSV) and more to choose from.
With their own dashboards that provide information on things like the status of the mining hardware, current hash rate, estimated earnings, and other parameters, mining pools offer cryptocurrency users the opportunity to participate in the mining process. mining a particular cryptocurrency on a consistent basis and earn regular rewards in proportion to the computing power contributed.
Understand the cryptocurrency mining process
Before we delve into what a cryptocurrency mining pool is and how an individual can join one, let us see how cryptocurrency mining is carried out and understand the main difficulties involved.
First of all, for any PoW blockchain protocol, the process of mining its native token involves solving mathematical problems using computing power, where the correct answer is represented as the hash number of the block, and the rewards are presented to the entity that resolves the fastest.
These rewards come in the form of native tokens, with the mining process scheduled in such a way that a new block of transactions is mined after specific lengths of time. In the case of Bitcoin, this time is around ten minutes and the complexity, or hash rate, is adjusted based on the amount of computing power available on the network.
At higher computing power, the hash rate increases proportionally and requires even more computing power to have any chance of solving the mathematical puzzle within each cycle time.
This is why cryptocurrency miners have gone from using personal computers or CPU miners to using graphics processing units (GPUs) and have now completely switched to custom built rigs that use hundreds of ASICs to mine cryptocurrencies.
These ASIC miners continue to evolve and use the latest chip technology to provide a hash rate that can increase your chances of mining Bitcoin or any other cryptocurrency. Depending on hash rate, power consumption, noise produced, and profitability per day, ASIC miners like the Bitmain Antminer S19 Pro, AvalonMiner 1166 Pro, and WhatsMiner M32 are preferred among the cryptocurrency mining community today. in day.
Whether it’s releasing new tokens into the system or verifying and adding transactions to the ledger in the form of blocks, the mining process gets harder as more miners compete for it.
Since the reward for mining a Bitcoin block is 6.25 BTC, it is quite lucrative from a monetary point of view and has motivated many miners to increase their computing capacity by buying expensive ASIC miners.
Alternatively, those who prefer to dedicate their existing computing power to earn smaller but consistent rewards prefer to join a cryptocurrency mining pool like F2pool, Slush Pool, or AntPool, and like to pool resources and earn daily rewards for their contributions.
How do cryptocurrency mining pools work?
A cryptocurrency mining pool is a collection of miners who work together as an entity to increase their chances of mining a block and share the rewards between them in proportion to the computing power contributed by them to successfully mine a block.
The mining pool operator manages activities such as recording the work done by each member of the pool, managing their hashes, assigning reward quotas to each member, and even the work they have to do individually.
In return, a mining pool fee is deducted from the rewards distributed to each member, which is calculated based on the pool sharing mechanism and depending on how these cryptocurrency mining pools share the rewards, they can be proportional. , pay-per-share type or completely decentralized peer-to-peer (P2P) pool type.
In a proportional mining pool, miners who contribute their computing power receive shares until the pool is successful in mining a block, which are then converted into rewards proportional to the number of shares received by each member of the pool. pool.
Pay-per-share pools differ slightly from proportional pools in that each member can collect shares received on a daily basis, regardless of whether the pool has been successful in finding a block.
Last but not least, P2P cryptocurrency mining pools are more advanced versions where all pool activity is integrated as a separate blockchain to prevent the pool members from being cheated by the operator or any individual entity.
Regardless of the type of pool one chooses, it is important to check whether the cryptocurrency mining pool is profitable after analyzing the computing power required, the electricity costs involved, the applicable mining pool fee and the frequency of payment of mining pools. cryptocurrency mining pools.
Typically, different cryptocurrency mining pools charge between 2% and 4% of the profits made, with most offering a daily payout mechanism at a predetermined time of day.
For taxpayers, however, the cost of purchasing dedicated ASIC miners and the regular cost of the electricity needed to power them must be carefully ascertained to understand whether cryptocurrency mining pools are profitable.
What are the different types of cryptocurrency mining pools and how to start mining in a pool?
There are a number of reputable cryptocurrency mining pools available for individual miners to join and start contributing.
Binance, AntPool, F2pool, Pool BTC, and Slush Pool are some of the well-known cryptocurrency mining pools that have exemplary track records in terms of uptime efficiency and regular payouts to pool members.
In fact, Slush Pool has been responsible for mining over 1.3 million BTC since its inception, helping over 15,000 individual small miners to collectively mine Bitcoin with a total hash rate accounting for 5-8% of total mining. the Bitcoin network.
Instead of participating in a Bitcoin mining pool, individual miners can also join the mining of other cryptocurrencies such as Litecoin (LTC), Bitcoin Gold (BTG), Monero (XMR), ETH, and Ethereum Classic (ETC) in between. others by joining the right mining rig.
Among Ethereum mining pools, Ethermine, 2Miners, F2pool, Nanopool, and Ezil are some of the more established options users can choose from, each offering a different network hash rate and ranging from hundreds to thousands of individual miners.
The choice of cryptocurrency to start mining with depends on its price stability, the hash rate required to consistently earn decent rewards, and the mining rig fees that will be subtracted from earnings. totals.
In addition to registering with a cryptocurrency mining platform, individual miners will need to have mining hardware in the form of one or more ASIC miners, installed mining software, and a secure cryptocurrency wallet to store the rewards and other cryptocurrency holdings to transact. .
The more capital invested in advanced mining equipment, the greater the chances of earning higher rewards, as long as all the hardware is dedicated to cryptocurrency mining.
Also, having a fast internet connection and uninterrupted power supply are essential to get the job assigned by the mining pool operator done at the fastest possible pace.
Advantages and disadvantages of a cryptocurrency mining pool
Cryptocurrency mining pools offer even the smallest miners the opportunity to use their computational resources to earn a regular income without having to invest heavily in developing dedicated mining equipment that can cost millions of dollars.
Regular payouts, clear, real-time visibility into reward potential, and the benefit of professional pool operator management are just a few of the benefits of joining a cryptocurrency mining pool.
However, not all cryptocurrency mining pools are safe, as demonstrated by Poolin, which recently announced that it was suspending BTC and Ether (ETH) withdrawals due to liquidity issues. Also, considering that cryptocurrency mining pools earn money by deducting a mining pool fee from the rewards earned by mining activities, the actual earnings of each pool member are considerably lower than what is realized in the case of being a unique miner.
Furthermore, the equipment needed to run even mining pool operations can be very expensive and profits can be disproportionately affected by any increase in electricity or internet costs.
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Clarification: The information and/or opinions expressed in this article do not necessarily represent the views or editorial line of Cointelegraph. The information set forth herein should not be taken as financial advice or investment recommendation. All investment and commercial movement involve risks and it is the responsibility of each person to do their due research before making an investment decision.