Cryptocurrency mining has come a mighty long way from its early inception back when mining bitcoin was as easy as downloading the original bitcoin client and beginning to mine on your CPU (Central Processing Unit).
Considering the current difficulty level of Bitcoin’s network, you would be laughed out of a room if you ever suggested mining the pioneer crypto with your CPU.
Simply put, Bitcoin’s difficulty levels have advanced so much that its mining has become the realm of Graphical Processing Units (GPU) and high-speed ASICs (Application Specific Integrated Circuit).
Today, as more miners join the cryptocurrency bandwagon it is becoming harder to mine blocks even with a high-end GPU as ASICs are getting outdated faster than they can be bought.
For this reason, mining pools have become the norm for serious miners. In this guide, we’ll take a look at what mining pools are and how you can join one for bitcoin and other cryptocurrencies.
Before we can understand what a mining pool is all about, let’s revisit the concept of mining. Crypto mining is the process by which cryptocurrency transactions are verified and added to the blockchain’s digital ledger.
Various cryptocurrencies have tailor-made processes for verifying transactions, however, most Proof of Work blockchains will feature a variation of Bitcoin’s core concept which involves miners.
In most cases, the miners will perform a ton of computational work that can be very difficult for the average CPU or GPU. This is why ASICs emerged as they are specifically designed to handle this level of work.
The job of the miners is simple; determine a hash value that meets certain requirements set by the blockchain, and if it does, you as the miner have successfully mined a block.
Miners compete to solve or find blocks that they can mine and the first miner to solve a new block wins some form of reward. This varies from blockchain to blockchain, but the reward is generally a new release of freshly minted cryptocurrencies.
The new block that has been mined is then broadcasted to other nodes on the network so that they can be added to the blockchain. This process happens promptly (usually every 10 minutes though it might vary from blockchain to blockchain) and ensures that each node stores a copy of its respective blockchain’s history.
As more miners take part in verifying transactions, the difficulty level also goes up.
For instance, Bitcoin’s built-in difficulty algorithm adjusts its mining difficulty level after every 2,016 mined blocks.
Crypto mining can prove to be quite lucrative as all that is required is for a miner to set up their mining rig and let the machines run while generating an income.
However, with increasing competition and mining difficulty, miners have to spend more money on electricity costs as well as on new ASIC machines as the old ones get outdated. For this reason, miners combine their resources to increase their cumulative profits.
Simply put, a mining pool is a collection of individual miners that work together by combining their collective computational resources to increase their chances of solving new blocks of transactions.
Mining pools increase the chances of earning rewards even though that reward has to be shared among members of the mining pool.
There are several mining pools available for most Proof of Work blockchain networks. Here are some examples of popular ones:
Slush Pool (Bitcoin mining pool) :
Slush is one of the longest-running Bitcoin mining pools and is also considered to be the oldest currently operating. It was started in 2010 by SatoshiLabs, a Czech-based company, and is run by a team of highly experienced experts. Slush was the first mining pool to offer an easy set-up of Stratum servers for miners, which meant there would be no need for separate proxy software or setting up a mining server.
F2Pool is a China-based mining pool that launched as a Bitcoin mining pool and has since advanced to include other cryptocurrencies such as Litecoin and Zcash. Just like many other pools, F2Pool also runs a dedicated mining node network and has several servers located in various parts of the world including Russia, Canada, and the U.S to mention a few. The pool is estimated to control about 17.5% of the market and is quite popular in Asia among other miners across the globe.
Just like the other mining pools mentioned above, AntPool offers its users a way to mine Bitcoin and several altcoins. AntPool has been active since 2014 and holds about 15% of the total hash rate of all Bitcoin mining pools. The pool is free to join, and it features support for stratum mining modes with nodes that can be configured in the GUI. The fee for using AntPool will vary depending on the size of one’s mining operation as well as the computational speed of their hardware. AntPool supports the mining of most cryptocurrencies based on the SHA-256 algorithm.
Founded in 2011, the BitFury pool controls about 11% of all Bitcoin mined blocks and is owned by a digital security company based in the Netherlands. The company makes ASIC miners and runs one of the largest mining operations worldwide that are used to mine Bitcoin. Most recently, BitFury announced that it had officially opened its mega data center in Tbilisi which will be used to mine Bitcoin.
Bigger operations mean bigger profits obviously, and that is why BitFury offers several different fee structures for its users. For instance, for those who wish to host a piece of mining equipment, there is a monthly fixed rate cost while those who want a hosted option will need to pay based on the amount of processing power that is being used.
A good thing to bear in mind is that with BitFury, one gets a chance to purchase mining hardware of Bitcoin at wholesale prices. However, the company does not sell mining software or ASICs directly to its customers. Instead, it sells them to its clients, who then go ahead and configure these devices based on their requirements.
Binance Smart Pool:
The Binance Smart Pool is a fast-growing pool owned by the giant crypto exchange company Binance. The Binance cryptocurrency exchange service is the largest in terms of trading volumes and is very active when it comes to launching new coins for its users.
Its Binance Smart pool was launched in April 2020 following the lead of other crypto exchanges such as OKex and Huobi, who also launched their minging pools in 2019.
The Binance Smart Pool is touted as a smart mining alternative that enables miners to get higher, more predictable returns by auto-switching their hash rate to mine different currencies. This pool supports both Proof of Work and Proof of Stake cryptocurrencies.
As you can see, there are several types of mining pools that use various mining processes, however, the process of joining is simple and somewhat similar across the board.
You can start by going to the mining pool website and signing up for an account. Some pools charge a fee for opening an account while others don’t. Most popular pools have a fee set at around 2% to 5% depending on the size of your operation as well as the type of cryptocurrency you wish to mine with them.
After signing up for an account, you simply need to connect and configure your miners. Once this is done, you can begin mining instantly and begin earning revenue. When you are connected, the pool takes your mining machine’s hash rate (the speed at which the crypto mining hardware can generate blocks) and combines it with the network’s hash rate.
This pool then divides the profit generated among all its miners who have contributed their hash rate to that particular cryptocurrency. Some pools give you the option of auto-switching in which case you will be able to automatically start mining another crypto if and when your current coin’s value falls below a certain threshold set by the pool manager.
You can mine using a software program or an ASIC rig bought from a hardware supplier such as BitMain’s Antminers.
Once your mining operation is up and running, you simply need to keep an eye on the pool’s dashboard for updated statistics and payment information. You can then withdraw your earnings once they accumulate.
Mining Pool Fees:
Most of the mining pools charge the users a certain percentage of their earnings, though some of them might not charge any fees, or they may have a nominal fee that they will let you keep. Fees are usually adjusted to current difficulty levels as well as the hash rate of other miners who are part of the pool. Miners need to pay attention to a pool’s fee structure as it may contain certain hidden costs.
Also, keep in mind that mining pools do not guarantee any specific earnings, though they tell you what your estimated earnings will be if you were to join their mining pool. All these are estimates, and the only way for you to make profits is by calculating how much you need to invest to get a certain amount of bitcoins or altcoins.
Most of the mining pools that you can join will have a certain threshold which is usually denominated in bitcoins or sometimes in altcoins. For example, if a pool charges 3% and has a payout threshold of 0.1 BTC, it means that you can only withdraw your earnings once you’ve earned 0.1 BTC or more. For this reason, miners with low-end mining rigs should avoid pools with higher thresholds.
Pool Security and transparency
It is important to consider the security features offered by the pool you join as well as the level of transparency among the operators of the pool. In terms of transparency, pool operators have to declare an accurate hash rate contribution level to give miners confidence that they are getting their money’s worth.
Also, pool operators need to disclose how often the pool can solve blocks so that miners can have a fair chance of being paid for their work. Most pool operators use a dashboard to show mining operations to their users.
Security is also a key feature as a pool can be vulnerable to a DDoS (denial of service) attack and undermine the miner’s potential to earn.
Pool focus and specialization
It is important to consider the pool’s focus and specialization as they are usually tailored for specific types of miners that have specific needs. For example, some pools can mine alternative cryptocurrencies, some that specialize in Bitcoin transactions only, while others offer additional features such as merged mining and multi-coin pools.
Pool’s unique features:
A good pool should provide its users with lots of useful features like detailed statistics of your earnings, automated payouts, and even hardware comparison tools. Besides these features, it is important to find a mining pool with a good reputation in the Bitcoin or altcoin communities.
The drawback that comes with mining pools is that the reward is shared among other miners as well. This means one might earn less than they would if they were solo mining and this also leads to an increased variance in earnings as sometimes the pool might not find any blocks for a while.
However, for those who prefer pool mining over solo mining, this is not a problem at all as pool mining has been the way of Bitcoin mining since its inception. Besides, the chances are that any pool you decide to join will be stable in the long run.
While you are out pool hunting, be sure to also consider the size of the pool you choose as it may have an impact on your earnings. For example, large pools tend to find blocks faster than smaller ones, and in case the pool you are part of does not mine a block for some time, your chances of getting paid will go down. Besides, a pool’s size reflects its trustworthiness and reliability.