What is a Mining Pool?

What Is Mining Pool?

What is a mining pool? Well, in the crypto world, a mining pool or a cryptocurrency mining pool refers to a group created by cryptocurrency miners who combine their computational power to improve their chances of successfully mining crypto, in doing so, also improve blockchain mining pool performance.

How Crypto Mining Works

To understand why mining pools are created, you must understand how crypto mining works. The process of mining crypto involves the creation of new blocks, which are added to the blockchain. As more miners join a network and mining technology becomes more efficient, the work needed to mine a block rises, ensuring that blocks are produced about every ten minutes. This process is costly and energy-intensive when using the proof-of-work (PoW) algorithm and difficulty adjustment.

To compensate miners for the cost of mining, they receive an award in Bitcoin, in the case of Bitcoin mining, when they produce a new block. Miners also receive all the transaction fees in the block that they mine. This is how miners make revenue and pay for the energy and equipment.

The process is competitive, and profitability is hard to sustain. One reason is the difficulty adjustment mechanism designed to make mining harder as more miners join in, contributing to the overall hash rate. If mining becomes profitable, most miners join in, which causes the difficulty to increase, reducing profits.

Miners that wish to remain profitable have to innovate at a sustained rate. The crypto mining pool sector is pushing the limits in terms of technology to increase the efficiency of the process.

Unpredictable Earnings

Miners only get a reward when they find a block. The Bitcoin proof-of-work (PoW) algorithm uses the SHA-256 hash function, which is random. As a result, miners can go for long periods without finding a block. For large companies, there is a better chance of success by having multiple machines running at the same time, which increases the chances of success.

For a small miner, it is difficult to sustain this effort due to high costs and the possibility of going months with zero revenue. To smooth out the revenue, small miners team up and distribute any rewards they earn. This is how mining pools were created.

How Mining Pools Work

Mining pools are a network of miners who work together to mine blocks cooperatively and distribute payments based on the contribution to the mining power of the pool. It enables miners to smooth out their revenue with a slight discount as fees paid to the pool coordinator.

Contributions are measured in hash rate, that is, the number of hashes or attempts to find a new block per second. When miners find a block, they pay the reward to the pool coordinator. After deducting a small fee, the coordinator distributes the remainder to the pool members based on the contribution to the total hash rate.

For small miners with low chances of finding blocks alone, joining a pool provides steady revenue. The revenue is proportionate to how much they contribute. While it will be small, it will be consistent. As such, active traders will, over the weeks and days, easily cover operating costs and earn sustainable profits.

The Largest Mining Pools Today

Foundry USA

Foundry USA is one of the top largest mining pools, it is a mining pool for the Bitcoin network, and it has been seen to have expanded in amount of hashrate. According to a report, this pool captured 17.99% of the global hash rate in Q1. And out of 2,380 BTC blocks mined, Foundry USA mined just one empty block in Q1.

AntPool

This is also a Bitcoin mining pool, and it is seen to be part of the largest mining pool today. Antpool has been seen to have captured 14.34% of the global hash rate in 90 days. This mining pool has also managed to mine 1,898 bitcoin blocks, with only four being empty.

F2Pool

F2Pool is considered the third largest mining pool. It commands 14.05% of the Bitcoin network’s overall hash rate in the last three months. The 14.05% computational power gave F2pool 1,859 blocks out of the 13,233 block rewards found in Q1.