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What is a mining pool – how it works, how to organize your own mining pool
What is a Mining Pool_
Cryptocurrency
17.12.2021
Updated 14.01.2022
12:41

In the first years after the blockchain’s creation, the process of mining was simple and could be done alone, through an ordinary PC, without specialized equipment. We will talk about the second option in this article.

What is a mining pool: in simple words

A mining pool is a special unifier of the power of miners in the form of a server. It performs the task of dividing the large and complex task of calculating a block signature into a large number of smaller, simpler tasks and distributes them to its members.

In this way, the combined community of miners acts together, increasing the chance of finding a block. And the final reward is distributed to all participants.

A mining pool is a tool that eliminates the randomness factor in the activities of the average miner. Even if a person has a powerful ASIC device or a few units of such devices, he will be only among millions of such mining participants. The chances of mining a block and receiving a reward will be small.

If you need a stable and predictable income, joining a mining pool is the smartest choice.

How a Mining Pool Works

Technically, a mining pool is a simple tool. It is a dedicated server that runs on the basis of not the most sophisticated software. If we describe in simple words how a mining pool works, the scheme is as follows:

  1. The mining pool gets the task of calculating the block signature.
  2. It splits that task into separate, simple tasks.
  3. The pool members receive these tasks and start doing the work.
  4. Each pool miner gradually accumulates “shares”  for solving hash functions to sign a block, which are given to him by the pool.
  5. If any of the “shares” satisfy the current difficulty values, the server announces that it has signed the block.
  6. Then the pool receives a reward for the mined block.
  7. A fair reward for each of the pool participants is determined by counting the transferred “shares” – the more of them were sent to the server by an individual miner’s equipment, the bigger part of the single reward he will get.

In this case, it absolutely does not matter whose “share” in the end allowed to extract the block. It is thanks to this approach that a stable and predictable income is possible. The randomness factor is excluded, and the number of mined coins directly depends on how powerful the equipment is connected to the pool.

How to organize your own mining pool and is it worthwhile?

Organizing your own mining pool is a tempting prospect. After all, the server owner can get a good commission just for the organization of the server. Usually, the organizers of such mining associations take from 0.3% to as much as 1-2% commission. In addition, the pools are often manipulated by understating the hash rate of miners, creating an additional hidden commission.

Nowadays, to create a pool, an average knowledge of programming is enough, and everything else can be done by templates and step-by-step instructions. There are practically no difficulties. The main problem is how to attract participants to it afterwards. The problem is that now almost all niches are occupied. They have been taken over:

Nevertheless, if you have a desire to try your hand in this field, we will describe the classic algorithm of creating a mining pool:

  1. First of all, you need to create software based on a code/script, for which you can use ready-made templates. But this will be a temporary step, because as the popularity grows, such publicly available solutions will be subject to attacks and even hacks. Subsequent work on a good unique code or individual upgrading of the old version will require more time, financial and intellectual costs.
  2. After that, a server is created for the pool. Another task that requires a significant financial investment. Do not do without renting a dedicated server or buy powerful server equipment. Stakes should be placed on performance with a good margin, as well as increased fault tolerance. Unstable and regularly failing servers can easily bury even the best idea and implementation of the pool. In addition, you will need to take care of a very stable line of Internet connection, as well as hiring at least two employees, among whom will be an administrator and a support specialist.
  3. The last stage does not require special technical knowledge, but it is the most expensive. Promotion of the pool – marketing and advertising. It will be hard, first of all, because the giants of the sphere, pools with 5-15% of blockchain network hash rate, already advertise themselves simply with their parameters and “word of mouth”. But a new project will not only have to be profitable, reliable, and attractive, but it will also have to spread the word everywhere all the time.

Competition between the various pools is something that is extremely unpleasant for their creators. But this process is beneficial to miners and spurs the development of miners’ associations.

Key metrics of a mining pool

If you are wondering how to choose a mining pool for yourself, or how to set up your future mining pool (what to strive for), you need to refer to the following key parameters:

And even oriented in these parameters, it is best to engage in independent testing of a number of pools of interest. Usually, 1 or 2 days of testing equipment in a particular mining pool is enough to understand how effectively the mining equipment works in the conditions provided to it.

Are Mining Pools Dangerous for Blockchain Decentralization

Studying the parameters and capabilities of mining pools, the reader of this article may wonder if mining pools are dangerous. After all, they disrupt the decentralized blockchain with their functions, creating large single transaction centers. What if one of the pools gets more than half of the hashing power?

This question is indeed a pressing one. After all, 51% of the capacity will launch the legendary and dreaded “51% attack”. And it will allow making dangerous edits to the blockchain. Perhaps this situation can destroy any project.

General conclusions

The emergence of such a phenomenon as mining pools has created a real revolution in cryptocurrency mining. It has changed once and for all. Pools created additional incentives for a huge number of small miners who sought stable and predictable payouts. And the variability of pools allows them to choose from dozens or even hundreds of schemes to make money in a community of like-minded people.

Of course, miners would prefer not to have too much concentration of power in one hands. But now the option of fully decentralized mining based on computer hardware is not feasible. Therefore, we have to settle for a sufficient degree of decentralization instead of the completeness of this parameter.