What is a mining pool?
- Author
- CRYPTO PORT Editorial
- Published
- Updated
- Reading time
- 5 min
In short
A mining pool lets many miners combine their computing power and split the block reward according to how much work each contributed. On their own, small miners might go years without finding a block; pooling smooths out the payouts. The trade-off is that when too much hash power concentrates in one pool, the network becomes less decentralised.
Key points
- Miners combine hash power and share rewards by contribution
- It smooths the extreme variance of solo mining
- Pools charge a fee and use different payout schemes
- Concentrated hash power weakens decentralisation
Definition
An arrangement in which multiple miners pool their hash power to act as a single mining entity and divide the resulting block rewards in proportion to the work each one submitted.
Under proof of work, only the miner who first finds a qualifying hash collects the reward. For anyone holding a tiny share of total hash power, that is close to a lottery. Pools exist to flatten this variance.
A pool hands out puzzles at an easier difficulty than the real chain. The solutions members submit are called shares, and they measure each member's contribution. When one share happens to satisfy the network difficulty too, the pool has found a block and the reward is distributed.
Payout schemes vary. Some divide the pool's actual block rewards after the fact, some weight recent shares, and some pay per share up front regardless of whether a block was found. The scheme determines how much variance risk the pool absorbs and how high its fee tends to be.
Watch out for
- · Payout rules and fees differ between pools and can be changed later
- · Heavy concentration in one pool raises concerns about censorship resistance
- · A pool temporarily custodies rewards, so unpaid balances vanish if it fails