When it comes to mining cryptocurrencies, the words “miner” and “pool” cannot be translated literally as “miner” and “pool”. They have already received their filling in the Russian language. “Miner” is someone who mines bitcoins, and “pool” is a vital thing for mining cryptocurrency. .
The process of block signature matching, otherwise known as mining, has a high computational complexity (difficulty). It is one of the most important parameters for the miner, since it is the change in complexity that determines his income. Over the course of Bitcoin’s existence, the long-term complexity has continually increased, so it is increasingly difficult for a miner to calculate the block’s signature alone.
The Bitcoin network is built in such a way that a 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 finder of the block receives and the amount of commissions embedded in all transactions included in the block. Right now it’s tenths of a bitcoin, but in the future, transaction fees will probably exceed the issuance component.
While the complexity was low, there was single, so-called “solo” mining. The solution to the computational problem could be obtained even on the processor of a single computer, so each miner worked alone and was rewarded with a whole block by himself.
As the complexity increased, solo mining became a thing of the past. Now even with the most powerful specialized equipment, you can mine for years, but never find the hash to sign the block – you need hundreds of these devices. Therefore, when Bitcoin became popular, the technology of joint mining – the pooling of many independent miners – emerged.
How a pool works
A “mining pool” is a server that distributes the task of calculating a block signature among all connected participants. The contributions of each are evaluated with what are known as “balls” (shares), which are potential candidates for the precious signature. As soon as one of the “balls” hits the target, the pool announces that the block is ready and distributes the reward.
When calculating remuneration, all accepted balls are taken into account (there are nuances in some payment systems), regardless of whether the “ball” turned into a block signature or not. It is this that achieves a fair distribution of mined coins. A miner with little power can work very long without finding a single block, but still get his share of the total pie – he is paid for the probability that it is one of his solutions that turns out to be right. Sometimes it does happen.
In this case, there is inevitably a rejection of some balls. From 0.5% to 1.5% of potential results are lost due to ball obsolescence (stale share) and on inevitable technical errors. A miner’s “payroll” is calculated like this:
- Pul sets the minimum complexity of the balls he takes. The value is usually an integer degree of number 2. It is chosen so as to minimize traffic from the user, while the flow of solutions must remain stable. For modern devices, the minimum accepted complexity is usually set in the range 16-128, and the optimal operating value is in the range 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 the complexity operating in the network and is only used for internal accounting.
- Then, the pool sums up all the balls received from the user over a period of time and multiplies them by the set working difficulty. Thus, it turns out, as if the miner sent balls with the complexity of 1, but in huge quantities. This is the base value for calculating miners’ earnings: the number of solutions of complexity 1 (Diff 1 shares). When the pool finds a block and receives the reward (25 BTC + commissions), the server divides this value by the number of difficulty 1 balls accepted from all miners, and then multiplies for each miner by the amount accepted from him.
- After 120 confirmations of the found block, the pool gets to dispose of the mined bitcoins, and distributes the bounty to the accounts or wallets of the miners, minus its commission if there is one. Large pools make payments faster, often in advance – this is one way to attract more miners. When withdrawing from the pool, you should consider the size of its commission, as well as the amount of commission on the withdrawal of funds.
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Allocation of Block Rewards
Each pool has its own rules and payout modes. For the service provided, the pool gets its share by paying miners on one of thirteen systems;
The main reward systems
PROP (Proportional) – a proportional model in which the reward for a block is divided strictly in proportion to the share of the balloon sent by each miner. As soon as a block is found – the counter of received balls is reset and the counting starts from zero. This is the easiest system, but payouts are extremely unstable, especially for small pools. If a miner came and went during a “long” block – he will get very little, but if he mined during a successful period – he can get a reward several times higher than the average calculator.
PPLNS (Pay Per Last N Shares) – also proportional distribution, but smoother. One of the most complex systems to understand, and at the same time the most effective for both the pool and the stable miners.
The payment is calculated for the number of balls sent, not for the time elapsed between two found blocks, but for a fixed number of certain time intervals, called “shifts” (shift). Each pool chooses the number and duration of “shifts” at its own discretion.
Payouts are made after the pool finds the next block. The value of the reward is much less dependent on the time intervals between blocks. If a block is not found for a long time, the payment grows smoothly, if the pool is lucky and the blocks fall like from the horn of plenty, the payment for each individual block decreases, but for the time N* duration_shift the amount of payments remains more or less constant.
Let’s take 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 pool capacity.
A full reward, similar to the proportional system, is only given to a miner after he has worked more than 10 hours at full speed on his devices. If he only mined for 1 hour when the pool received the block, he will earn only 10% of his share on a pro rata basis, if he mines for 3 hours, he will earn 30%.
Seems like pure robbery. But if the user stops working in the pool, then in the next 10 hours he will still receive a reward – in 3 hours – 70% of the “normal” share, in 5 hours – 50%, and so on. Accrual will stop completely after the same 10 hours.
Let’s say the pool found 3 blocks in 10 hours. In this case, the miner will receive 25 BTC*3/100, i.e. 0.75 BTC. If in 10 hours one block is found, the actual income of the miner will be only 0.25 BTC. But, unlike the PROP system, the “earned” balls are counted for another 10 hours, and if a few more blocks are quickly mined, they make up for the failed period.
That is, the PPLNS system smoothes out the effect of chance, but it can’t eliminate it completely.. It is best suited for miners who constantly work on one pool. Another advantage is its low or zero commissions, because the pool does not bear risks to users, paying only what is actually mined. Some pools include in the distribution and commissions received for transactions. The PPLNS has several varieties that do not fundamentally change the pattern.
PPS (Pay Per Share) – a fixed payment for each ball accepted by the pool. In this case, the pool assigns a fixed fee for the ball. It is calculated based on the block award divided by the current difficulty on the network, and then multiplied by the number of balls with difficulty 1 sent by the user. From the user’s point of view, this system is the most “fair,” because you pay for all the work done, regardless of the result – that is, it doesn’t matter if the blocks are found or not.
But for the pool, this approach has serious risks – because long periods between blocks, orphans (unaccepted by the network) lead to losses – the pool pays rewards to miners in advance from reserves, but does not receive income itself. Therefore, the pools with the PPS system usually have a high commission – usually from 3 to 7%.
PPS mode, in turn, has variations:
SMPPS – each ball is priced at face value, but at the cost 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 needed to be able to spend bitcoins from an issue transaction). Usually pools with this method of accrual do not take a commission. Examples: Eligius (0%).
RSMPPS – When a block is found, the reward is distributed in proportion to the number of balls received from miners for the last block, without taking into account the debt from previous blocks.
If there is something left after this giveaway, the remainder is distributed in proportion to the debt from the penultimate block. If there is anything left after that, the debts on the earlier blocks are paid.
Such payment system is advantageous for new participants of the pool, because the debts on old blocks are paid on the residual principle and does not affect the amount of payments to new participants. But the accumulated debt can become critical for the pool when the award for the block is halved, as happened with tzod.ru. Right now, no major pool uses this mechanism.
In the long run, it does not matter what payment system is used for a single pool-based miner. Of course, systems without commissions are more profitable.
The Bitcoin Wikipedia Comparison of mining pools page provides the most complete table comparing pools and their characteristics. But it is not updated very often and a lot of data may be out of date. Many of the pools that started first have already closed.
P2Pool – decentralized pool
It was not uncommon for pools to be hacked by hackers because they knew there was always a lot of money in their wallets. It happened that the pool administrators themselves showed bad faith (for example, disappeared with the money and shut down the server). To exclude such possibilities, the decentralized pool P2Pool was invented, the program code of which is open for checking and changing. Each node (node) of P2Pool is only one element of the system. Participants should stay on one of the nodes to get the maximum reward. It is not profitable to “jump” from one node to another.
P2pool has many advantages over classic pools. First of all, it’s anonymity – you do not need to enter your personal data, you only need a valid wallet and email address to start working. Decentralized structure gives 100% protection from DDoS, and if one of the nodes “falls off”, the results will automatically take over the other node. A commission is distributed among P2Pool miners, which further increases their income. Owners of conventional pools often keep the commissions for themselves.
Merged mining – mining multiple cryptocurrencies
Merged mining is the co-mining of multiple cryptocurrencies at once. Those hash solutions that were not useful in calculating the Bitcoin block signature go to calculate other cryptocurrencies set up for co-mining. Among the forks mined in parallel are Namecoin, Devcoin, IxCoin, I0Coin. All of them are of great complexity and low exchange rate.
Some Bitcoin pools include co-mining of one or more forks, typically Namecoin. It gives miners 1-2% additional income. Therefore, when choosing a pool, pay attention to the possibility of using merged mining.
Co-mining is supported by Lightcoin and Dogicoin. Since both cryptocurrencies use the same Scrypt algorithm, there are no technical problems with this.
Whoever mines Lightcoin gets some extra amount of Dogicoin and vice versa.
Multi-coin and multi-pools
There are pools not only for mining bitcoins but also for other cryptocurrencies. Of the alternatives, the most popular is Litecoin (LTC). The more so because 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 a double SHA256. But as time went by, multi-monetary pools also appeared.. They are connected to them by miners who want to mine several cryptocurrencies, switching to mining the most profitable at the moment. The miner performs all switching manually. To switch to another altcoin, it is enough to change the TCP port in the settings of the mining software.
In fact, the only difference between a multi-coin pool and a regular one is that the user does not need to create multiple accounts for each separate 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 currently most profitable cryptocurrency. This takes into account the complexity, the price of the coin on the exchanges and many other factors. Multipools can typically mine altcoins using several common hashing algorithms: SHA256, Scrypt, Scrypt-N, X11-13-15, etc.
It must be said that many modern cryptocurrencies – such as Ethereum and DASH – use graphics processing units (GPUs) to mine. 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 replaced by mining in pools, which significantly reduces the potential for decentralization, because the pool actually disposes of the power of the connected miners at its own discretion. Including, for example, the operator of the pool can include in its blocks only the transactions he needs. The strategic goal for decentralized currency enthusiasts should be to improve distributed mining technology so that it can be used by anyone – as easy as connecting to one of the regular pools.