What Are Mining Pools And How Do They Work?

Mining is a key part of how cryptocurrency works and mining pools is an essential part of making cryptocurrency mining work. But what is a mining pool? In short, mining pool is a group of people who pool their computing resources in order to mine cryptocurrency. People do this because mining cryptocurrency has become very difficult, to the extent that a single person mining cryptocurrency can struggle to make much progress due to the high energy costs and the need for highly specialised hardware.

For this reason people form collectives to mine together, as this reduces the cost of mining activity and means that they can mine more effectively. This collective is a mining pool. Mining is a complex process and this article will cover everything you need to know about mining pools including the differences in the blocks of cryptocurrency that you can mine. It all affects your income so read on for everything you need to know to mine profitably as part of a mining pool.

What is multi-pool mining?

You could choose to mine using a simple, single mining pool that operates across one cryptocurrency only. But by choosing to use a multipool you get the opportunity to switch cryptocurrencies depending on the degree to which a cryptocurrency can be mined profitably. Multipools are very clever in deciding which cryptocurrency is the best to mine at any given point in time.

A multipool will look at a range of factors, and do so dynamically. For example, a multipool would consider the difficulty of mining a coin alongside the exchange rate between coins plus the current block generation time and of course the hash rate.

So if you’re really not sure which coin to mine at a specific time you might want to think about a multipool. However note that multipools will usually immediately swap the coin that was mined for another coin so you could end up slightly because of volatile cryptocurrency prices.

How mining pool rewards work

Every mining pool can choose to distribute mining rewards in the way that it prefers. Two of the popular ways to distribute rewards include PPS or pay per share as well as FPPS which is full pay per share.

First, with PPS the pool offers an immediate payout for every share of the cryptography math solved by a participant. PPS is the more basic way of managing mining pool payouts and payouts are made from the pool’s existing balance.

FPPS is a bit more complex because members benefit not only from the block rewards paid out, but also from the transaction fees that are generated by the mining pool. These transaction fees would be calculated over a set period of time and then added when the block reward is pay out – it is paid out in the same as the PPS mode.

Should you use a mining pool?

It depends on your needs and your mining capabilities, mining pools have both pros and cons. On the one hand, the advantages of mining pools include the fact that your income is likely to be more stable while mining will cost you less so you could earn a bit more in a mining pool.

However on the flipside mining pools can sometimes break down, pausing mining activity while you will have to share block awards and you might find that the way rewards are released is not structured in your favour.

That said you can sometimes do better using a mining pool as long as you are sure you know how mining pools work and as long as you have taken a bit of time to explore the pros and cons of different mining pools – and indeed their reputation too.


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