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What are Bitcoin Mining Pools?

What are Bitcoin Mining Pools?

Individuals who do not have the computing power to compete with large bitcoin mining operations can join a mining pool and split the rewards.

Mining pools allow individuals with insufficient computing power to join a mining pool and split the rewards proportionally to the amount of computer power that they contributed. If a user contributes 3% of the computing power that it took for the pool to solve a block, that user will receive 3% of the reward.

In the past, people with an extra computer or two in their home could make decent passive income through mining. It wasn’t too long ago that there were far fewer miners, and they were more likely to be able to receive the rewards for solving blocks since the time required to solve a block took approximately 10 minutes by design. It also used to be that the reward for solving blocks was bigger each time it was paid.

In general, however, mining is designed to pay out smaller rewards over time, as the system is not meant to indefinitely generate new bitcoins (which is the reward), but instead the incentive is meant to shift from mining rewards built into the code to transaction costs charged in order for transactions to be included in blocks, which allows them to be validated, cleared, and added to the distributed ledger.

Hardware and software for mining have also evolved in the past several years, with some computers being manufactured only for mining. GPUs are increasingly used for their higher possible hash rate, and variations in the software platforms and services are designed to make various hardware function at optimum capacity when working alone or in pools. Software protocols such as Getwork and Stratum can link miners to their mining pools, and client software can help miners determine if their mining is profitable.

Access to cheaper electricity than the rest of the world has made Chinese mining pools more profitable than in other countries, but the 2017 Chinese government crackdown on ICOs and exchanges has many Chinese operations worried that it will shut down bitcoin mining in China. Current (2017) competitive hashrates for mining hardware purchasable by entry-level miners is around 10-15 teraHashes/second for higher-end machines. In larger pools, miners can expect more regular returns, but the returns will, of course, be proportionally smaller.

Keywords: hash function, Bitcoin mining, mining pools, Getwork, Stratum,