What is Mining Pool

A mining pool is a collaborative arrangement where multiple individual cryptocurrency miners combine their computational resources hash power to increase their collective probability of finding the next valid block and earning the associated block reward. Earnings are then distributed among all participants proportional to their contributed hash rate.

THE SOLO MINING PROBLEM

Mining Bitcoin solo means competing against the entire global network of professional mining farms with industrial-scale ASIC hardware. A small miner with 100 TH/s in a 600 EH/s network has a 1-in-6,000,000 chance of finding any given block. At one block per 10 minutes, a solo miner at this scale would statistically wait over 100 years between block finds. The variance is simply too high for individual miners to sustain operations long stretches of zero income make cost planning impossible.

HOW MINING POOLS SOLVE VARIANCE

By pooling hash power, miners find blocks collectively and regularly. A pool with 10% of Bitcoin's total hash rate finds approximately 10% of all blocks roughly one block every 100 minutes. Pool participants receive proportional shares of each block reward based on the "shares" they submit partial solutions that prove work was performed, even if not at the full difficulty of a valid block.

POOL REWARD METHODS

PPS (Pay Per Share): Miners receive a fixed payment for every valid share submitted, regardless of whether the pool actually finds a block. Smoothest income but pool bears variance risk pools charge higher fees for this model.
PPLNS (Pay Per Last N Shares): Rewards based on the last N shares submitted when a block is found. Income fluctuates with pool luck but has lower fees.
FPPS (Full Pay Per Share): PPS plus transaction fees miners earn a share of transaction fees included in blocks as well.

MAJOR BITCOIN MINING POOLS

Foundry USA: Largest by hash rate as of 2024.
AntPool (Bitmain): Second largest.
F2Pool: One of the oldest and most established pools. ViaBTC, Binance Pool,
Marathon Digital: Other significant participants.

THE CENTRALISATION CONCERN

Mining pool concentration is a legitimate security concern. When the top 3-4 pools collectively control over 50% of Bitcoin's hash rate, coordinated attack scenarios become theoretically possible even if pool operators and miners have different interests. This is why Bitcoin advocates encourage hash rate diversification across more pools.

Terms in addition to the Mining Pool

Blockchain

A blockchain is a subset of a distributed database. The Bitcoin inventors originally prototyped the system in 2008. This modern database is made up of separate blocks that are connected together in a chronological chain. Blockchains may be used to store a wide range of data types. It has mostly been utilized as a public ledger for bitcoin transactions to date. A peer-to-peer network comprised of independent nodes uses a consensus process to ensure the blockchain's security and legitimacy. Each node in the network keeps a public and immutable copy of the data.

2 Factor Authentication (2FA)

2 Factor Authentication is a security measure with two layers. It is used by the majority of cryptocurrency exchanges. To log in, you must provide not only a password, but also a code obtained, for example, from the Google authenticator.

Airdrop

An airdrop is a method of distributing coins. End users can typically obtain coins for free or in exchange for doing a small task, such as subscribing to a newsletter, sending a tweet, or inviting others via a personal affiliate link. Cryptocurrency airdrops — the act of depositing cryptocurrency into public crypto wallets — are utilized as a marketing, liquidity creation, and network bootstrapping technique for many different types of blockchain initiatives.

Altcoin

Altcoin - "alternative coin" - is any kind of digital currency other than Bitcoin. Since the launch of Bitcoin, the world's first digital currency, many altcoins (as well as supporting blockchains) have been created. Altcoin digital currencies share many similarities to Bitcoin, but consistently and have significant differences. There are about 20,000 altcoins, and this number is expected to grow significantly in the coming years. Altcoins often develop Bitcoin features. Ethereum, currently the most widely used blockchain, supports digital contracts and separate applications where Bitcoin does not. Altcoins are also often created to cater to the needs of different users. The Litecoin blockchain, for example, can process payments quarterly for the duration of Bitcoin.

Cold Storage

Cold storage is the way to store cryptocurrency offline. The word refers to the use of offline wallets that are not connected to the internet. Cold storage is the most secure way to keep cryptocurrencies since an offline currency becomes less likely to be hacked and stolen. Paper wallets, printed renditions of private keys, and offline hardware and software wallets are all examples of cold storage.