Mining pools are a cost-effective solution to cryptocurrency mining. They allow miners to save costs on mining rigs, electricity costs, equipment, and much more.
In this guide, we’ll examine some of the top mining pool options, as well as how to go about joining one.
Table of contents
- What Are Cryptocurrency Mining Pools?
- How Cryptocurrency Mining Pools Work
- Cloud Mining: Another Transformative Mining Endeavor
- Understanding Pool Reward Split Mechanisms
- The Best Cryptocurrency Mining Pools
- Factors to Consider When Selecting Mining Pools
What Are Cryptocurrency Mining Pools?
A cryptocurrency mining pool is a pool of miners combining resources to conduct their activities. It is the usual alternative to solo mining, which many believe to be expensive and risky.
Mining pools provide a cheaper and more convenient alternative to solo mining, allowing enthusiasts to get in on the activity without necessarily committing so much money to it. Mining pools are gradually gaining widespread adoption, as it improves democratization in the mining space and allows the free entry of new prospective miners.
How Cryptocurrency Mining Pools Work
Proof of Work is a mining protocol where miners can mine or validate transactions based on their hardware’s strength to solve complex computational problems. It’s the algorithm used to mine popular cryptocurrencies like Bitcoin and Ethereum.
Proof of Stake allows anyone to mine new currencies based on the number of coins owned. PoS is an alternative to PoW. Ethereum plans to move to PoS as part of implementation for its Ethereum 2.0 upgrade. For this guide, we’ll focus on proof of work mining.
Cryptocurrency mining involves two functions – verifying and adding transactions to blockchains, and releasing new units of the asset into circulation.
While it sounds easy, crypto mining can be quite expensive. To get it right, you will need a lot of processing power and high electricity consumption. Miners will compete to solve mathematical puzzles, and this process takes a lot of time and resources.
Simultaneously, the mining protocol is configured to become more complex as activity increases.
Thanks to the possible rewards, mining has become incredibly lucrative. So, more people have opted in to give it a try – evidently raising its difficulty. With more people trying to get their fair share, finding new blocks is more complicated, and miners require more computing power.
Today, you can find Graphics Processing Units (GPUs) and Application-Specific Integrated Circuits (ASICs) worth much more than what many can afford. Consider electricity costs and other expenses, and it might not be so easy getting into the mining space.
Enter the mining pool.
With a mining pool, a group of miners works together to improve their chances of getting a block and verifying data. Through mining pools, miners combine their computing power, ensuring that they can achieve their goals faster.
When the mining pool mines a block, each participant gets a share of the rewards based on a formula. The most common method is to split the rewards by proportion of the amount of computing power provided. However, the sharing formula could also differ between pools.
It’s easy to see the attraction of mining pools. Individual mining can be more lucrative, but your chances of getting a block are low.
Even if you did get your block, you need to consider the funds you would have spent running the operation for so long. Mining isn’t overly profitable for individuals, and things are incredibly challenging now since several cryptocurrencies – primarily Bitcoin – are harder to mine.
Mining pools solve this. They require less input in terms of hardware, and you also don’t have to pay much in electricity costs.
By partnering with other miners, you can contribute your computing power as it is and get your fair share when the pool mines a block of transactions. Teaming up with others essentially increases your chances of success.
On the flip side, there’s the fact that you’re surrendering your autonomy in the mining process. Mining pools are bound by laid-out rules that determine how participant approaches the mining process. Additionally, you could earn less with a mining pool compared to mining solo.
Cloud Mining: Another Transformative Mining Endeavor
Many see cloud mining as the next frontier for crypto mining. This service allows you to mine a cryptocurrency using rented cloud computing resources of a service provider.
With cloud mining, you essentially participate remotely in the mining process while paying a fee to the company to maintain their operations.
All participants become members of a mining pool, and you purchase a certain amount of hash power. Each participant gets a pro-rata share of the profits based on the amount of hash power they rent. Cloud mining has many benefits. It reduces the cost barriers for miners, as the service provider makes the investment for you. Besides the cost benefits, it also eliminates technical barriers to setting up a mining operation. All you have to do is to check your balances on a smartphone.
Understanding Pool Reward Split Mechanisms
Before we discuss the reward methods for mining pools, it’s essential to understand what shares are.
Shares are units that allow pool owners to calculate an individual miner’s contribution to the pool. Miners are allocated shares that are proportional to their contribution to the entire pool.
Through shares, miners can get paid by the pool based on their contribution. Note that shares are practically invisible. They have no actual value and are essentially just terms that pool operators use to determine how much to pay pool participants.
Shares can be categorized into accepted or rejected shares. Accepted shares are work that contributes towards a round in a pool. The more shares a miner contributes during a round, the higher their payback. Rejected shares are work that doesn’t contribute to the discovery of new cryptocurrencies. They are not compensated.
So, according to the share amount, mining pools can employ any of the following payment methods:
a.) Pay-Per-Share (PPS)
The PPS scheme sees miners get shares that can be paid at any point along the hashing process. With PPS, miners can get paid for valid shares contributed, regardless of whether a block was solved during their participation or not.
To effect payments, the pool operators will pay miners from their balance. Share rates are fixed here, and miners are often informed in advance.
There’s a new version of PPS known as PPS+ rewards. With this method, you’re essentially running the PPS mechanism in tandem with the TX fees included in the block. These TX fees are distributed using PPLNs(more on this later). The PPS + rewards system reduces the risk of miners not getting paid for their pools’ contributions.
Sadly, this scheme also has a downside. Most times, pool operators charge high fees to cover their risks.
This system pays members rewards that are to each member’s shares in the pool’s total shares. That’s how the Proportional reward works. The greater your computing power and the longer you mined to get the block, the more shares you can commit.
The score-based payment was built to prevent pool-hopping. Here, pool operators calculate your compute power and mining time and aggregate them into a “scoring hash rate” score.
So, the longer you stay in the pool, the greater your score and the higher the value of the shares you get. Your score gets smaller when you stop mining, and your shares’ value drops. When a block is found, miners get their rewards.
d.) Pay Per Last N Shares (PPLNS)
In PPLNS, miners only get paid for the shares allocated to them during a predetermined “window,” which ends with securing a block.
Unlike other payment schemes, shares owned outside this window don’t get rewarded. In this scheme, windows could either be defined as a time frame or a certain number (N) that represents the last shares allocated to the miner up to the block’s solving.
For instance, if N is 1 billion, only the last billion shares will be rewarded when a block is found. If N isn’t defined, it is usually set as a multiple of mining difficulty and a constant.
With PPLNS, miners can earn higher rewards if they receive more shares in the last N shares – or they get no rewards if they didn’t get any shares within the range.
The Best Cryptocurrency Mining Pools
To be fair, selecting the best mining pools depends on your preference. Mining pools differ based on several factors, and you will need to choose which works best for you. However, some of the most popular pools include:
Top Bitcoin Mining Pools
Established in 2010, SlushPool was the very first mining pool. It has maintained a strong position in the industry, providing impressive gains and returns to participants.
The Czech Republic-based mining pool follows a score-based system and is a medium-sized pool. The pool’s operators take 2 percent in fees from every block mining reward, and the service itself boasts a simple interface that anyone can follow and understand.
Antpool is a Chinese-based mining pool operated by Bitmain Technologies, the world’s largest cryptocurrency mining hardware provider.
This medium-sized mining pool allows you to choose between two reward categories; PPLNS (with a 0 percent fee) and PPS+ (with a 4 percent fee from block rewards and 2 percent mining fee). Of course, using the latter provides a higher chance of getting rewards.
Antpool makes payments once daily, although you will need to hold over 0.001 BTC to get your money.
Antpool’s user interface is beginner-friendly, with a dashboard that displays earnings, hash rates, and other critical details. The platform also comes with advanced security infrastructure, ensuring that your earnings are secure.
BTC.com is another long-serving mining pool that is still making waves to this day. Also owned by Bitmain technologies, this pool was established in 2016. It comes with similar features as Antpool, including the FPPS and PP+ sub-categories.
Service fees stand at 1.5 percent, and the pool’s payment threshold is also 0.001 BTC.
Established in 2013, F2Pool is a medium-sized pool. It takes a 2.5 percent fee, which is quite expensive.
One of F2Pool’s most significant benefits is that it supports mining in other cryptocurrencies as well. These include Ether, ZCash, and Litecoin. The pool also runs a daily automatic payout, although the payment threshold is 0.005 BTC.
Like many of the top pools, this one features a simple layout and easy-to-use interface.
Poolin was established in 2017 by three former Bitmain employees. The mining pool has grown in leaps and bounds over the past few years. With hundreds of bitcoins mined monthly, Poolin is one of the top mining pools worldwide.
This pool offers multi-currency support and an easy-to-use interface, and an FPPS mining mechanism. The pool charges 2.5 percent in fees.
Top Ethereum Mining Pools
Ethermine is the most popular mining pool. It provides a simple PPLNS payout scheme and instant payouts with a minimum payout threshold of 0.05 ETH.
Formerly known as ETHfans, Sparkpool is one of the largest Ether mining pools available. It uses a PPLNS system, and its minimum payout of 0.1 ETH with a one percent fee.
Nanopool is a multi-currency mining pool. It’s got a PPLNS payment scheme, as well as a one percent fee and payouts several times daily. The minimum payout threshold on Nanopool is 0.2 ETH, and the pool allows you to also mine Monero, ZCash, and Ethereum Classic.
Factors to Consider When Selecting Mining Pools
Like everything else in the crypto industry, scammers pose as mining pool operators so they can steal your coins. You don’t want to pick a pool that steals from you – or worse, which doesn’t pay you when due. So, when you select a pool, check out reviews to see what current miners are saying.
b.) Cryptocurrency Support
It goes without saying – if you’re looking to join a mining pool, you should be able to mine your cryptocurrency of choice.
Along with the reputation, you also need to consider the pool’s size. Generally, the rule of thumb is the bigger, the better.
Pool size is based on two factors – the number of connected miners and the pool’s hash rate. Joining small pools won’t be much more profitable than solo mining.
However, while you can easily find large pools, you also need to consider that these pools usually have high difficulty. So, you might not be able to join these pools if you don’t have powerful-enough equipment. So, you will need to strike a balance between pool size and equipment power. This shouldn’t be much of a problem.
d.) Payment Rules and History
You will need to consider the payment threshold when selecting a pool to join. If you’re a small miner and the pool’s minimum payment threshold is high, you might not get paid for months.
Keep in mind that payment thresholds will also depend on the currency. Some assets have low transaction fees, and their thresholds are usually lower.
Crypto mining pools provide an exciting approach to mining. They are cost-effective and can offer several benefits to members, especially since you get to mine at your capacity. While your rewards won’t be the same as when you decide to mine solo, your earnings should accumulate over time, and you should get sizable profits.