ViaBTC丨How Mining Pools Work: A Rediscovery of Mining Pools
In 2021, the crypto space witnessed many breakthroughs. The success of new concepts like NFT, DeFi, the metaverse, and new public chains has drawn the attention of capital institutions. As tech giants keep investing more funds, investors have flocked to the new crypto categories in a search for new opportunities in a sluggish economy. In light of this, mining, one of the most prudent investment choices in the industry, has captured the spotlight. However, many new crypto investors don’t know much about mining pools. Today, we will introduce the concept of mining pools and show you how a mining pool works. Get ready for a rediscovery of mining pools.
Q1: What is a mining pool?
The concept of mining pools dates back to Bitcoin. In the early days, the hashing power of the entire Bitcoin network was very limited, and mining was also not that difficult. At the time, you could mine Bitcoin using an old PC. Later on, along with the increased BTC consensus, both the number of miners and the BTC hashrate rose, and mining became increasingly difficult. Under such a background, individual miners struggle to get stable block rewards from the BTC network due to their limited hashrate.
Therefore, some individual miners began to consider pooling their hashing power for joint mining. Having sensed the business opportunity, some institutions/platforms developed a way to combine the limited hashing power of individual miners. The system of integrated hashrate is now known as mining pools.
Under such a mechanism, individual miners, regardless of the scale of their hashing power, could receive yields from joint mining as long as they are connected to a mining pool. In addition, their mining pool yield is directly linked to the mode of settlement.
Q2: What are the primary settlement models of mining pools?
Mining pools mainly use five types of settlement, including PPS, PPS+, FPPS, PPLNS, and SOLO.
1) PPS (Pay Per Share): The mining output is, more or less, affected by chances. As such, the ratio of the received mining yield to the expected yield is called lucky value. If the value is greater than 100%, the received yield of a mining pool exceeds the expected yield. On the other hand, if it is less than 100%, the received yield of the pool falls below the expected yield. PPS is the distribution model that operates under the assumption that the lucky value equals 100% (i.e. it assumes that the pool could earn the expected yield).
What this means is that the pool bears the fluctuation risks of mining output. To be more specific, the pool must pay miners the corresponding mining yield even if no block is mined on a given day. As the pool bears the risks, it charges a certain fee. In short, this approach offers steady returns regardless of market conditions. It is thus also known as the “employee model” among miners.
2) PPLNS (Pay Per Last N Shares) refers to the payment of mining yield based on the number of shares miners submitted during a shift. Under PPLNS, the mining yield is closely bound up with the actual number of blocks mined in a pool. When a new block is mined, the pool will first deduct the service fee, and then distribute the remaining block reward and miner’s fee to each miner according to their hashrate share.
If a large number of blocks is mined in a pool on a given day, this model would promise high returns. However, if it failed to mine any block on a day, the mining yield would be zero.
3) PPS+ (Pay Per Share+): Here, “+” means the miner’s fee charged by the mining pool. The model is an improvement of PPS. It adds another item of yield on the basis of PPS — Under PPS+, the miner’s fee charged by the mining pool will be distributed according to miners’ hashrate share.
4) FPPS (Full Pay Per Share): Compared with PPS, this model introduces a new item of mining yield. Though this new yield is also counted as miner’s fee, FPPS differs from PPS+ in that the yield is distributed according to the average miner’s fee of the entire network on a day, while the added yield in PPS+ is allocated based on the miner’s fee charged by the pool. As the two models could differ in terms of the distribution of the miner’s fee, the mode of settlement, as well as the choice of mining pools, the mining yield may also vary.
4) SOLO: Under this model, miners operate as if they work solo. If a block is mined, they will get all the block rewards after deducting the corresponding service fee. On the other hand, if no block is mined, miners under this model earn zero profit. This approach is more suitable for miners with a high hashrate share. If your hashrate share is only moderate, then this mode of settlement is not for you.
These are the primary settlement models employed by mining pools. Of course, the actual yield also depends on the hashrate share of the pool, as well as its overall maintenance capacity.
Q3: How to select a mining pool?
The crypto bull in 2021 gave rise to many blockchain institutions, including incubators, exchanges, media platforms, project teams, mining farms, and mining pools. In such a market, what should beginner investors/miners consider when choosing a mining pool?
To begin with, mining pools with a high hashrate share would be a good choice. Such pools are often well-established. A high hashrate share indicates that the pool works with large mining farms. It is also proof that the pool is widely trusted among miners. Normally, such reputable pools are veteran institutions that have been around for years.
Secondly, you should go for pools with a good reputation. As the proof of successful products and services, a good reputation shows the overall strength of a pool, as well as its blockchain resources;
Thirdly, you should choose a pool where you can mine, withdraw, and sell with greater convenience, which is particularly important under extreme market conditions.
Considering all of the above conditions, you could try out ViaBTC Pool, which is a leading pool that has been engaged in the mining business for five years. During that period, the pool has always been committed to security, transparency, fairness, and liberty. It respects both the demand of the market and miners and introduced products & services that include Mining Farms, Mining Companies, Hedging Service, Crypto Loans, Yield Sharing, etc. Having captured the blockchain spotlight, ViaBTC Pool has been well-recognized among miners.
It should be noted that Auto Withdraw is favored by miners under extreme market conditions. This function automatically sends your mining yield to your withdrawal address without charging any fees. Furthermore, On the webpage of Auto Conversion, you can have all your mining yields automatically converted to USDT and BTC. In particular, this feature could perform an auto conversion every hour. Of course, you may also choose manual conversion based on your needs.
If you are a new miner, please stay focused on ViaBTC. Recently, the mining pool has upgraded its referral commissions and launched the Ambassador program. Join ViaBTC now as a miner together with your friends and receive lifetime referral commissions of up to 20%. Of course, as the pool keeps rolling out more exciting content, it encourages more miners to join the platform on a journey to the digital economy.