The emergence of mining pools was a response to the difficulties faced by miners attempting to mine blocks independently. Solo mining proved to be an expensive and labor-intensive process. In this article, we will explore what a mining pool is and how it works.
Cryptocurrency mining is the process of creating new blocks in a blockchain, which involves solving complex mathematical problems. This process requires significant computational resources, making it inaccessible to many individual miners. To increase their chances of successfully creating a block and receiving a reward, miners join together in mining pools.

What is a Mining Pool?

A mining pool is a collective of participants who work together to solve computational problems and share the rewards for the blocks created among all participants, depending on each individual's contribution to the overall process.
Mining pools emerged as a solution to the problem of solo mining, where it became difficult for a miner to create blocks without collective assistance. In response to these challenges, miners started to unite in “pools” to mine blocks collaboratively.

A mining pool is a collective of participants who work together to solve computational problems and share the rewards for the blocks created among all participants, depending on each individual's contribution to the overall process.

Mining pools emerged as a solution to the problem of solo mining, where it became difficult for a miner to create blocks without collective assistance. In response to these challenges, miners started to unite in “pools” to mine blocks collaboratively.

With the development of Bitcoin, the mining process became significantly more complex, and successfully creating blocks required the use of more powerful equipment, such as application-specific integrated circuits (ASICs). These devices perform hash computations—cryptographic functions that generate encrypted data for the blockchain. Over the years, the overall difficulty of mining Bitcoin has continued to increase, which is a fundamental aspect of the cryptocurrency.

In the white paper written by Satoshi Nakamoto, it was specified that a new block should be created every 10 minutes, and the mining difficulty adjusts every 2016 blocks.

The process of creating blocks directly affects mining difficulty: the faster the blocks are created, the higher the difficulty becomes. Hashrate, which determines the computational power of mining equipment, also plays a key role in this process.
For miners, it is important to have a high level of hashrate, as this indicates a large number of participants in the network and increases their chances of successfully creating a block.
The process of decoding hashes, which is necessary for creating a block, can take a lot of time and requires numerous attempts. This demands powerful equipment, making mining expensive for those working alone.

In addition to high computational power, the costs of purchasing and maintaining mining equipment are also increasing.

How a Mining Pool Works

A mining pool helps miners achieve a more stable income by combining their efforts to increase the chances of creating a block and earning a reward. However, the reward is divided among all pool participants, so each receives a smaller share compared to solo mining.

Pools are used not only for Bitcoin but also for other cryptocurrencies based on the Proof-of-Work (PoW) protocol, such as Ethereum. Miners distribute the reward according to the pool's payout scheme. Here are some of the most common types:

Proportional Pools distribute the reward for a found block proportionally to each miner's contribution. The more power a miner contributes, the larger the share of the reward they receive.

Pay-Per-Share (PPS) Pools provide miners with a fixed payment for each solved share, regardless of whether a block is found. This reduces risks for miners and ensures a stable income.

Full Pay-Per-Share (FPPS) Pools are an extended version of PPS, where, in addition to fixed payments per share, miners receive a share of transaction fees, increasing their income.

Pay-Per-Last-N-Shares (PPLNS) Pools distribute rewards among miners who contributed shares in the last N shares before the block is found. This method encourages miners to participate in the pool long-term, as rewards depend on their recent activity.

Solo Mining Pools allow miners to work independently through the pool's infrastructure, receiving the full reward for found blocks, but with a significantly lower chance of finding a block. This type of pool is suitable for miners with high computational power who want to avoid sharing the reward.

Mining: Solo or Pool - What to Choose?

To make cryptocurrency mining profitable, significant computational resources, high energy costs, and considerable time are required. These factors create challenges for miners who work alone, especially due to high competition in the network.

As the popularity of mining has grown, competition for block extraction has increased significantly, and many powerful participants have entered the market. This makes solo mining less effective for those with a lower hashrate.

Mining pools have become a lifeline for individual miners who cannot compete with large groups. By pooling their efforts, miners increase their chances of earning a reward while reducing the load on their equipment and electricity. This not only helps cover costs but also increases the likelihood of earning a stable income.

Mining pools play an important role in the cryptocurrency ecosystem, combining the computational power of miners for more efficient block extraction and reward distribution. For example, F2Pool is one of the largest pools, supporting a wide range of cryptocurrencies and offering flexible conditions for its users. Braiins Pool, one of the oldest pools, ensures transparent and efficient reward distribution among participants. WhitePool, integrated by the WhiteBIT, is distinguished by its support for the FPPS model, which provides stable payouts and currently operates without additional fees, attracting miners who seek convenience and transparency in mining.

While mining pools are a profitable and convenient alternative, solo mining can still be more profitable in the long run. However, mining pools continue to displace individual mining farms due to their stability and efficiency. Pooling resources allows miners to achieve a more predictable income, making this option more attractive.

As a result, solo mining is suitable only for those with large budgets and powerful equipment. However, considering environmental requirements, shared mining may become the most rational way of mining cryptocurrencies in the future.

*The material is not financial advice. Always conduct your own research before any investment/trading operation.