Mining pools – why do miners need a pool?

When it comes to cryptocurrency mining, you can’t translate the words “miner” and “pool” literally, like “miner” and “pool”. They have already received their content in Russian. A “miner” is someone who mines bitcoins, and a “pool” is a vital thing for mining cryptocurrency. The block signature selection process, otherwise called mining, has a high computational complexity (difficulty). It is one of the most important parameters for a miner, since his income depends on the change in complexity.. During the existence of Bitcoin, the complexity in the long term is continuously growing, therefore, it is increasingly difficult for the miner to calculate the signature of the block alone. The Bitcoin network is built in such a way that the reward (first 50 BTC, then 25, and soon only 12.5 BTC) for a valid block signature is the only method of issuing cryptocurrency. In addition to this fixed value, the miner who found the block also receives the amount of commissions included in all transactions included in the block. Now these are tenths of bitcoin, but in the future, perhaps, the payment for transactions will exceed the issuance component. While the difficulty was low, there was a single, so-called “solo” mining. The solution to a computational problem could be obtained even on the processor of one computer, so each miner worked alone and received a reward in the form of a whole block. With increasing difficulty, solo mining is a thing of the past. Now, even with the most powerful specialized equipment, you can mine for years, but you still can’t find a hash for block signature – hundreds of such devices are needed. Therefore, when Bitcoin gained popularity, the technology of joint mining appeared – the pooling of many independent miners. How the pool works A mining pool is a server that distributes the task of calculating the block signature among all connected participants. The contribution of each of them is evaluated using the so-called “share” (share), which are potential candidates for obtaining a precious signature. As soon as one of the “balls” hits the target, the pool announces the readiness of the block and distributes the reward. When calculating the reward, all accepted shares are taken into account (there are nuances in some payment systems), regardless of whether the “ball” has turned into a block signature or not. This is how a fair distribution of mined coins is achieved.. A miner with a small capacity can work for a very long time without finding a single block, but at the same time he will receive his share of the total pie – he is paid for the probability that exactly one of his decisions turns out to be correct. Sometimes this really happens. At the same time, the rejection of some balls inevitably occurs.. Between 0.5% and 1.5% of potential results are lost due to stale share obsolescence and inevitable technical errors. The “wage fund” of the miner is calculated as follows: The pool sets the minimum difficulty of the shares that it accepts. The value is usually an integer power of 2. It is chosen in such a way as to minimize traffic from the user, while the flow of decisions must remain stable.. For modern devices, the minimum accepted complexity is usually set in the range of 16-128, and the optimal working value is in the range of 64-512. As a rule, this difficulty is set manually by the miner or automatically selected by the server.. It has nothing to do with the real value of complexity in the network and is used only for internal accounting. Then, the pool sums up all the shares received from the user for a period of time and multiplies them by the set working difficulty. Thus, it turns out as if the miner sent balls with a difficulty of 1, but in a huge amount. This is the base value for calculating the earnings of miners: the number of decisions of complexity 1 (Diff 1 shares). When the pool finds a block and receives a reward (25 BTC + fees), the server divides this value by the number of difficulty 1 shares accepted from all miners, and then for each miner multiplies by the sum of decisions taken from him. After 120 confirmations of the found block, the pool gets the opportunity to dispose of the mined bitcoins and distributes the reward among the accounts or wallets of the miners minus its commission, if any.. Larger pools make payouts faster, often upfront – this is one way to attract more miners. When withdrawing from the pool, you should take into account the size of its commission, as well as the size of the commission for withdrawing funds. Block Reward Distribution Each pool has its own rules and payout modes. For the service provided, the pool receives its share, paying off miners using one of thirteen systems. The main reward systems PROP (Proportional) – a proportional model in which the block reward is divided strictly proportionally to the share of the ball sent by each miner. As soon as a block is found, the counter of accepted shares is reset and the count starts from zero. This is the simplest system, but the payouts are extremely unstable, especially for small pools. If the miner came and left during a “long” block, he would receive very little, and if he mined during a good period, he could receive a reward several times larger than the average for the calculator. PPLNS (Pay Per Last N Shares) – also proportional distribution, but smoother. One of the most difficult systems to understand, at the same time the most effective for both the pool and stable miners. Payment is calculated for the number of shares sent not for the time elapsed between two found blocks, but for a fixed number of certain time intervals, called “shifts” (shift – shift). The number and duration of “shifts” each pool chooses at its discretion. Payments occur after the pool finds the next block. The amount of the reward depends much less on the time intervals between blocks. If the block is not found for a long time, then the payment grows smoothly, if the pool is lucky and the blocks are pouring, as if from a cornucopia, then the payment for each individual block decreases, but for the time N*shift_duration, the amount of payments remains more or less constant. Consider a simple example. The pool has a PPLNS system with 10 shifts, the duration of each is 1 hour. The hash rate of user devices is 1/100 of the total power of the pool. The full reward, similar to the proportional system, the miner begins to receive only after he has worked at full speed of his devices for more than 10 hours. If at the time the block was received by the pool, he mined only 1 hour – he will earn only 10% of his share with proportional distribution, if 3 hours – then 30%. It would seem that pure robbery. But if the user stops working on the pool, then in the next 10 hours he will still receive a reward – after 3 hours – 70% of the “normal” share, after 5 hours – 50%, and so on. Accrual will completely stop after the same 10 hours. Let's say in 10 hours the pool found 3 blocks. In this case, the miner will receive 25 BTC*3/100, i.e. 0.75 BTC. If one block is found in 10 hours, then the actual income of the miner will be only 0.25 BTC. But, unlike the PROP system, the balls “acquired” by him are taken into account for another 10 hours, and if a few more blocks are quickly mined, they will compensate for the unsuccessful period. That is, the PPLNS system smooths out the influence of the random factor, but cannot completely eliminate it.. It is best suited for miners who work on the same pool all the time.. Another of its advantages is low or zero commissions, since the pool does not bear risks to users, paying only what is actually mined.. Some pools include in the distribution and commissions received for conducting transactions. PPLNS has several varieties that do not fundamentally change the scheme. PPS (Pay Per Share) – a fixed payment for each share accepted by the pool. In this case, the pool assigns a fixed reward for the share. It is calculated based on the block reward divided by the current difficulty in the network, and then multiplied by the number of shares sent by the user with difficulty 1. From the user's point of view, such a system is the most “fair”, since all work performed is paid, regardless of its result – that is, it does not matter whether blocks are found or not. But for the pool, this approach carries serious risks – since long periods between blocks, orfans (blocks not accepted by the network) lead to losses – the pool pays the reward to the miners in advance from the reserves, but does not receive income itself. Therefore, pools with a PPS system usually have a high commission – usually from 3 to 7%. The PPS mode, in turn, has varieties: SMPPS – each share is valued at face value, but at the expense of a delay before payment so that the pool can find blocks to replenish the reserve. The interval is usually 120 blocks (the standard number required to be able to spend bitcoins from an emission transaction). Typically, pools with this accrual method do not charge a commission.. Examples: Eligius (0%). RSMPPS – when a block is found, the reward is distributed in proportion to the number of shares received from the miners for the last block, without taking into account the debt on previous blocks. If after this distribution something remains, the remainder is distributed in proportion to the debt for the penultimate block. If after that something remains, the debt for even earlier blocks is paid. Such a payment system is beneficial for new pool participants, since the debt on old blocks is paid on a residual basis and does not affect the amount of payments to new participants. But the accumulated debt can become critical for the pool when the block reward is halved, as happened with Currently, no large pool uses this mechanism. In the long run, for a miner running on the same pool, it doesn't matter which payment system is used. Of course, systems without commissions are more profitable. On the Bitcoin Wikipedia page Comparison of mining pools you can find the most complete comparison table of pools with their characteristics.. But it is not updated very often and many data may be out of date.. Many of the pools that started first have already closed. P2Pool – a decentralized pool Often, pools were hacked by hackers, because they knew that there was always a lot of money in their wallets. It happened that the pool administrators themselves showed dishonesty (for example, they disappeared with money and closed the server). To exclude such possibilities, a decentralized pool P2Pool was invented, the program code of which is open for verification and modification.. Each node (node) P2Pool is only one of the elements of the system. Participants should stay on one of the nodes to receive the maximum reward. It is not profitable here to “jump” from one node to another. P2pool has many advantages over the classic pool. First of all, it is anonymity – you do not need to enter your personal data, you only need valid wallet and email addresses to get started. The decentralized structure gives 100% protection against DDoS, and if one of the nodes “falls off”, the results will be automatically picked up by another node. A commission is distributed among P2Pool miners, which further increases their income. Regular pool owners often keep the fees for themselves. Merged mining – mining of several cryptocurrencies Merged mining is a joint mining of several cryptocurrencies at once. Those hash solutions that were not useful when calculating the signature of a Bitcoin block are used to calculate for other cryptocurrencies configured for joint mining.. Among the parallel mined forks are Namecoin, Devcoin, IxCoin, I0Coin. All of them are of great complexity and low exchange rate. Some Bitcoin pools include the joint mining of one or more forks, usually Namecoin. It gives miners 1-2% additional income. Therefore, when choosing a pool, pay attention to the possibility of using merged mining. Joint mining supported by Litecoin and Dogecoin. Since both cryptocurrencies use the same Scrypt algorithm, there are no technical problems with this. Anyone who mines Litecoin receives an additional amount of Dogecoins and vice versa. Multi-coin and multi-pools There are pools not only for mining bitcoins, but also for other crypto-currencies. Of the alternatives, Litecoin (Litecoin, LTC) is the most popular.. Moreover, there is also specialized hardware (ASIC) for the Scrypt algorithm. In its classic form, the pool is a server for connecting devices that perform calculations using the same algorithm – for Bitcoin it is double SHA256. But over time, multi-coin pools appeared. Miners who want to mine several cryptocurrencies are connected to them, switching to mining the most profitable at the moment. The miner performs all switching manually. To switch to another altcoin, just change the TCP port in the settings of the mining program. In fact, a multi-coin pool differs from the usual ones only in that the user does not need to create several accounts for each individual fork.. All mined coins are transferred by the pool to one account, from where they are manually or automatically paid to the miner's wallets. The next step in development was multipools. Their main advantage is that mining automatically switches to mining the most profitable cryptocurrency at the present time.. This takes into account the complexity, the price of the coin on the exchanges and many other factors.. On multipools, as a rule, you can mine altcoins using several common hashing algorithms: SHA256, Scrypt, Scrypt-N, X11-13-15, etc. It must be said that many modern cryptocurrencies – for example, Ethereum and DASH – use graphics processors of video cards (GPU) for mining.. There are also forks of Bitcoin that can only be mined on central processors. But, regardless of the equipment used, the principle remains the same: solo mining is being replaced by mining in pools, which significantly reduces the decentralization potential, since the pool actually manages the power of connected miners at its discretion. Including, for example, the pool operator can include only the transactions he needs in his blocks. The strategic goal of decentralized currency enthusiasts should be to improve distributed mining technology so that anyone can use it – as easy as connecting to one of the regular pools.