How do bitcoin pools work

What is Cryptocurrency Mining? What is the block reward? L as mining pools They are a group of miners that cooperate with the objective of mining blocks from a blockchain. The purpose of this group is to facilitate the work of mining is. The creation of these groupings responds to the need to be able to satisfactorily solve the puzzles of a blockchain as the power of your network increases and the mining difficulty. A job that individually would be very difficult for each miner to complete.

The first mining pool that was created is called SlushPool. It was presented in the forum Bitcointalk on November 27, by the user Slush. This user is currently CEO and co-founder of Safe deposit. SlushPool was implemented in Europe, specifically in Poland, the country of origin of Slush itself. The intention of its creator was to unite the forces of the underpowered miners.

This in order to face the growing practice of GPU mining that was born in Bitcoin. The result of this interesting insight was surprising in allowing these miners to make better group profits than solo. The operation of the mining pools depends on three clear actors, responsible for cooperativity between all the mining units that are members of said pool.

The operation of mining pools would not be possible if the Bitcoin protocol did not allow this function. First of all, the one responsible for this is a function that is built into the Bitcoin base client. This functionality was known at the time as getwork. This allowed a dispersed mining group to have a target block to mine cooperatively. In this way, mining power is concentrated on a specific objective instead of individual ones.

Therefore it serves to optimize the global mining process. What Getwork was actually doing was communicating to a group of miners so that together they mined the same block. Each miner working on unique solutions until one of them could solve it satisfactorily. In this way, the block would be mined more quickly and network delays are avoided due to the increase in difficulty that was coming.

However, Getwork had some weaknesses that were later overcome thanks to the function getblocktemplate. This new function allows to overcome the weaknesses of the old systems allowing a better scalability and security. In order to allow multiple miners to pool their computing power at one point, it is necessary to have a server to serve as a link. It may sound ironic that a decentralized technology like blockchain relies on a centralized service.

But there are good reasons for this: keep pace with block production and allow profits for the little ones. The most common cooperative mining server software is Bitcoin's own official service, the bitcoind.

Other fairly common softwares are BFGMiner , p2pool , ecoinpool o stratum. In any of these cases the operation is basically the same. First, the service software to be used is installed, for example, bitcoind. This service is configured in such a way that you can listen to the connections that come from the Internet to your server.

In this way, a communication channel can be opened between the miners and the cooperative mining server. At this point, each miner must have a registered account so that the server can give him access to the service.

But not only that, the registry also serves to distribute the profits from mining among those who are part of the pool. Each mining software has different features and supports. Miners must correctly choose the mining software that fits the characteristics of the mining pool they will join. The work of a mining software is simple.

List of Partners vendors. A mining pool is a joint group of cryptocurrency miners who combine their computational resources over a network to strengthen the probability of finding a block or otherwise successfully mining for cryptocurrency. Individually, participants in a mining pool contribute their processing power toward the effort of finding a block.

If the pool is successful in these efforts, they receive a reward, typically in the form of the associated cryptocurrency. Rewards are usually divided between the individuals who contributed, according to the proportion of each individual's processing power or work relative to the whole group.

In some cases, individual miners must show proof of work in order to receive their rewards. Rewards are usually split among the miners based on the agreed terms and on their respective contributions to the mining activity. Anyone who wants to make a profit through cryptocurrency mining has the choice to either go solo with their own dedicated devices or to join a mining pool where multiple miners and their devices combine to enhance their hashing output.

Not all cryptocurrency mining pools function in the same way. There are, however, a number of common protocols that govern many of the most popular mining pools. Proportional mining pools are among the most common. In this type of pool, miners contributing to the pool's processing power receive shares up until the point at which the pool succeeds in finding a block. After that, miners receive rewards proportional to the number of shares they hold.

Pay-per-share pools operate somewhat similarly in that each miner receives shares for their contribution. However, these pools provide instant payouts regardless of when the block is found. A miner contributing to this type of pool can exchange shares for a proportional payout at any time.

Peer-to-peer mining pools, meanwhile, aim to prevent the pool structure from becoming centralized. As such, they integrate a separate blockchain related to the pool itself and designed to prevent the operators of the pool from cheating as well as the pool itself from failing due to a single central issue.

While success in individual mining grants complete ownership of the reward, the odds of achieving success is very low because of high power and resource requirements. Mining is often not a profitable venture for individuals. Many cryptocurrencies have become increasingly difficult to mine in recent years as the popularity of these digital currencies has grown and the costs associated with expensive hardware necessary to be a competitive miner as well as electricity oftentimes outweigh the potential rewards.

Mining pools require less of each individual participant in terms of hardware and electricity costs and increase the chances of profitability. Whereas an individual miner might stand little chance of successfully finding a block and receiving a mining reward, teaming up with others dramatically improves the success rate.

By taking part in a mining pool, individuals give up some of their autonomy in the mining process. They are typically bound by terms set by the pool itself, which may dictate how the mining process is approached.

They are also required to divide up any potential rewards, meaning that the share of profit is lower for an individual participating in a pool. One disadvantage of a mining pool is its centralicity — most pools today have central nodes that can be DDOSed, and if not configured accordingly when a DDOS happens the miner will just sit idly instead of reverting to a different pool or to solo mining.

Read our Binance review or check best crypto exchanges list. These provide the backend services, the GUI must be built by yourself with any features you may wish to include. The former is almost unused at this time, although considered to be more resilent to attacks such as DDOS.

If you were to consider running a pool the requirement of a very high bandwidth server is needed as it consists of using a LOT of traffic depending where your located this may be VERY difficult to find.

Building a user base may be difficult but with merged mining it may increase profit for running such an enterprise. What is the criteria you should consider when choosing the right mining pool to join? Well, most of the below listed criteria points are rooted in basic common sense, like fees the lower, the better , pool reputation and uptime. Trustworthy pool operator ties into the pool reputation factor that we mentioned above.

This is probably the most important criteria to examine: do your research on the internet, ask questions in mining and crypto communities to see if there are negative reports and personal experiences with the pool.

Fees are self-explanatory; the lower the fees a pool charges for itself, the more money is left for you. You want the pool to have a big hashrate to make sure it will mine a lot of blocks and your payouts will be regular.

Server location and uptime — location plays role because of the latency — you need to be quick in broadcasting that found block, especially when mining a coin with huge hashrate and big mining difficulty.

Uptime is a big deal. Just like with regular websites, if it is offline when someone visits, the owner loses money. Same with mining pool servers — if they are offline, all miners in the pool lose money as nothing gets broadcasted to the blockchain.

Payout schedule is also a minor factor. It is an individual preference as some people like few bigger payments while others like a lot of smaller payments. Payout schemes are also a condition to pay attention to. There are numerous payout designs, some of the most common are.

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The views expressed in this article are those of the author and do not necessarily reflect the official policy or position of CaptainAltcoin. Not a professional trader nor speculator! I read, learn and talk to people - then I summarize it and share my conclusions with you. We have seen a strong need for better media coverage in the industry as the rise and popularity of digital currency is at an all-time high. Journal Mining. Admir Tulic September 19, By picking the right coin at the right time - click the button to learn more.

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