The process of verifying and adding transactions to a blockchain public ledger is known as cryptocurrency mining. The process of verifying these transactions, known as “finding blocks” in some cryptocurrency ecosystems, requires a significant amount of time and computing power. As a result, those who work toward this goal are rewarded for their efforts, typically with cryptocurrency tokens.
Understanding Mining Pools for Cryptocurrency
While the benefits of mining appear to be lucrative, the process is complicated. In the case of Bitcoin, for example, the mining process is designed in such a way that as more miners attempt to mine the available cryptocurrency tokens, the amount of computing power dedicated to mining increases, increasing the difficulty level of mining. 2
Add in the prospect of spending hundreds or even thousands of dollars on an expensive and specialized mining rig, as well as the cost of electricity, and individual miners frequently do not find cryptocurrency mining to be a profitable venture.
Mining pools have come to dominate the cryptocurrency mining world for these reasons. They act as a group of miners who pool their resources across a network in order to mine digital currency with greater computing power. A mining pool has a better chance of finding a reward, but it must be shared among pool members according to predetermined terms.
In this section, we’ll look at the criteria that a miner should consider when choosing a mining pool.
1. Infrastructure Acceptance
With hundreds of mining devices already on the market and new-age advanced devices hitting stores on a daily basis, it is critical to ensure that the mining device you use is compatible with the pool requirements. For example, Slushpool, one of the oldest mining pools, expressly advises against using CPU, GPU, or smartphone-based bitcoin mining.
Similarly, a pool may not support the use of all mining software packages, and a miner may require specific software that is pool-compatible. Some pools may also require miners to have a minimum network connection speed to the pool server, which must be verified against the miner’s internet connection speed. Before weighing the benefits and drawbacks of a pool, consider whether these restrictions will prevent you from participating in the first place.
2. Mechanism for Task Assignment
Mining pools assign work to miners using a variety of methods. Assume pool A has stronger miners and pool B has weaker miners. A pooling algorithm running on the pool server should be efficient enough to evenly distribute mining tasks across those subgroups.
One common method is to assign more difficult tasks to the stronger pool A and comparatively easier tasks to the weaker pool B, which allows for uniformity in average communication frequency across the network to different miners with varying capacities.
Slushpool, for example, employs a specially designed algorithm known as Vardiff (Variable Difficulty Algorithm), which assigns more difficult tasks to stronger individual miners and less difficult ones to weaker miners, allowing for relatively even communication frequency. It enables a balanced flow of hash data to the pool server, ensuring accurate measurement of the hash rate generated by the miner and ensuring that each miner has a fair chance of being rewarded.
Before joining a mining pool, a miner should look for consistency in hash tasks assigned by the pool server, regardless of the mining power of a participant’s device. Consider joining a pool that prioritizes high-speed devices. If you join such a pool with the most recent and fastest miner, you may have an advantage today, but it may become a disadvantage tomorrow as new, more powerful devices join the pool, pushing your now-obsolete devices back, unless the pool mechanism ensures equal opportunity for all.
3. Operator Transparency in Pools
In order to ensure transparency and trustworthiness among mining members, the mining pool operator has certain obligations that must be met fairly. For example, how can a miner tell if the total hash rate declared at the pool level is accurate, or if the pool operators are taking the participant miners for a ride by quoting lower payouts? At different levels of mining difficulty, how lucky (or unlucky) was the pool?
To achieve this required transparency, mining pools use a variety of methods, such as providing miners with a real-time dashboard view. Miners should seek out pools that operate in a transparent manner and join those that do.
4. Frequency and Payout Threshold
If you have low-end hardware, you should stay away from pools with higher payment thresholds. Your lower computational output will result in lower earnings, and you might have to wait longer to reach the payment threshold. The same can be said for the mining pool’s payment frequency.
5. Pool Robustness and Stability
Another important factor to think about before joining a pool is the security assessment. Is there a secure connection or an open connection at the pool?
Is it vulnerable to DDoS attacks, which have become more common as pooling activity has increased? And, if hacked, will the mining pool be able to withstand and recover from the attack?
6. Structure of Pool Fees
There are pools that charge no fee at all, as well as pools that charge a nominal fee to participants for using the mining pool services. Miners should, however, pay attention to the fee structure and payout mathematical formula, which may include additional charges.
Some free pools are only available for a limited time and then charge, while others charge a fixed and/or frequent separate cost in the name of a “donation.” Others may require you to host and run the software on your own device rather than on the pool server, making it a costly input for the miner.
Is it true that size does matter?
Many people believe that pool size is unimportant, and that the number of coins mined over time is proportional to the computing power of large and small pools, resulting in a level playing field. However, there is a catch: time is of the essence!
Because of their greater computing power, larger pools have a better chance of finding blocks, while smaller pools may have to wait longer. When observed over a sufficient time period, the smaller pools may experience long periods of not finding a block, followed by a quick lucky period in which blocks are hit more frequently.
A smaller pool with a higher payout may be right for you if you can deal with irregular payouts over long periods of time. Someone who requires a steady income with a high probability, low-payout scheme, on the other hand, may prefer a larger pool.
All of this being said, the size of a mining pool does, to some extent, reflect its trustworthiness. Despite all of the positive and negative feedback posted online about a pool, the fact that a large number of active miners are still using it suggests that they trust it.
Decentralization is favored
While it may be tempting to choose a popular mining pool based on its size, the underlying blockchain concept suggests that a large number of smaller pools, rather than a smaller number of large pools, are better for maintaining the network in a truly decentralized manner.
This is a critical consideration in maintaining the overall health of the blockchain network and avoiding any potentially dangerous concentration of hashing power through a few large pool servers. On blockchains, network bandwidth clogging is a common issue. This recommendation prevents power concentration in a few large pools, ensuring that the blockchain remains truly decentralized.
Successful mining necessitates a combination of luck and computational effort, as well as a lot of patience. While pool mining may make some things easier for the miner by providing a ready-made setup, it also adds an additional level of checks. Miners should carefully select a pool that suits their needs based on the factors listed above.