Bitcoin Mining Pools Explained

Introduction

Bitcoin, a decentralized super-organism, was created in 2008. Then, mining farms and data centers were designed specifically for the world-famous coin to function smoothly. At the dawn of BTC mining, the complexity of solving technical problems was low. Therefore, enterprising people easily received hundreds of bitcoins using a home PC. The complexity increased over time, and the probability of generating a block decreased. The benefits of mining reduced while energy costs grew and incomes plummeted. For this very reason, mining pools were created.

A mining pool is a server that divides the complex task of getting a block signature into smaller and simpler tasks and shares them among connected devices. Accordingly, the processing power of the pool participants is combined to solve the large task, which significantly increases the chances of finding a block.

Most users earn bitcoins through pools. Hash complexity is so high you can’t make a profit alone, even with a super-powerful computer. Therefore, new pools are constantly formed. There are already over 1,500 of them worldwide. While the list is long, legit and reliable sites are difficult to find. Some “freshly released” altcoins, younger than BTC, are faster and easier to mine. They do not have real value, though. You can earn them in the hope that the exchange rate will grow in the future, but that looks more like spec mining.

How to Choose a Cryptocurrency Mining Pool

Before you make a choice, compare pools based on certain parameters:

  • Overall hashing power. The higher the hash rate, the greater the number of virtual currencies the can be mined, and the more block rewards the miner will receive.
  • Reward type. The revenue from solving algorithms is often distributed to every member of the pool based on the miners’ hash power contribution. If you cannot make a significant contribution, then it will be more profitable to find a pool that divides rewards equally.
  • Payouts. Find out if you can withdraw funds using a bank card or e-wallet, and check the average commission percentages. Luckily, most pools boast very minimal commission fees.
  • Profitability. Profitability is an important but hard to predict factor. Mining difficulty changes. If the number of members who mine a coin is low, the difficulty falls. If there are a lot of miners, the difficulty starts growing, and it becomes harder to find a block.
  • Location. The big thing is the location of the server. It is extremely important to choose a mining pool located near you. The closer the pool server is, the more efficient your mining will be because there should be no delays between the server and your farms. It’s widely believed that it is better to choose servers located as close to the hardware as possible. This will ensure a stable connection and minimal ping. The geographical location is a minor detail.
  • Usability and anonymity. There are two main types of pools: ones that require registration, and ones that do not. Accordingly, pools without registration are easier to work with and more anonymous. You should choose such pools if this factor is important to you. Pools with registration, in turn, usually offer more advanced management options and performance statistics. Pick the one that you want to deal with.
  • Personal preferences. You can ignore all previous tips if the pool’s dev or owner is your friend, brother, or compatriot. Choosing not the most profitable pool or the one that charges high fees but sends them to charity is fine. You shouldn’t focus only on the financial benefits. The choice is yours!

PS assess your hardware. If you need to increase the graphics card performance, mining will not be profitable. If you mine with an old computer, the profits will not cover your electricity costs.

Payout Schemes

There are many different methods for calculating your payments. The most famous of these are PPS, PPLNS, and PROP.

PPS is one of the most common payment systems. It sends a fixed payout for each share calculated for the pool. This system is considered the fairest one from the miners’ point of view because they are paid for their work regardless of the outcome of the process. You warn a stable rate, and the method is objective, completely eliminating the luck factor. The pool manager, in turn, runs the risk, so they will most likely charge an additional fee from either the users or the block reward.

Another well-known scheme is PPLNS. This technique calculates your payment based on the number of shares you send to the pool during the mining. It is largely about the luck factor, and you will notice huge fluctuations in your 24-hour payout. If you rarely switch pools, then PPLNS is definitely your best bet because such pools are good at rewarding their loyal miners.

Today, many types of payment schemes exist. Nonetheless, you will meet these two most frequently. It is impossible to say unequivocally which system is better or more profitable. Everything depends on the power of your equipment, as well as the nature of mining that you prefer. For example, those who have powerful hardware and try to stick with one pool will find the second model more advantageous. By dealing with the same system for a certain amount of time, they will be able to reach a net profit. If you like to hop from one pool to another, it is better to opt for the PPS scheme. In general, everything is about a degree. You need to try both types to make up your mind.

Finally, there is the PROP payment system. PROP is short for “proportional.” The principle for award distribution can be found in the name itself. Long story short, all payments are distributed in proportion to the contribution of each participant. The PROP payment system does not demonstrate any significant shortcomings. It is intrinsically fair to the miners and completely eliminates the possibility that the pool will have to pay out of pocket to participants. Greatest efficiency is achieved when you work for a long time in a single pool. The only gap that exists in this system is the hopping. Pool-hoppers mine only during the good times and leave a pool during the bad times. Such a practice allows them to get more out of the pool than they contribute to it. They increase their personal profits at the expense of the continuous miners.

Popular Mining Pools

The modern crypto world has an awful lot of mining pools. The birthplace of most of these services is China, oddly enough. AntPool is no exception. The project was co-founded by BitMaintech Corporation. AntPool differs from other platforms with its wide customization options, as well as an abundance of working tools. The interface allows you to check all the information about the current level of mining, speed, and even the success of other participants.

F2pool is one of the first mining pools, and it has established itself as one of the global leaders in the mining industry. Currently, it is the best crypto mining tool in terms of the number of supported currencies. Initially, it focused on Bitcoin only, but then it introduced ETH in 2015, and by 2019, it had added a wide variety of other coins.

Binance Pool is a comprehensive platform for miners from the Binance exchange. It combines services related to mining and financial issues, so users can increase their potential profit. The Binance Pool includes a Smart Pool and supports automatic hash-rate switching between different currencies (BTC, BCH, BSV) to maximize profits. The final revenue from mining is credited in BTC.

BTC.com is interesting for those who want to invest in BTC and mining. It includes a powerful pool for BTC mining and a wallet where you can store two currencies: Bitcoin and Bitcoin Cash. Since its launch in 2016, the resource has managed to attract major players in the crypto market and continues to develop rapidly. The resource is owned by Bitmain Company, one of the most successful providers of the hardware used to secure blockchain transactions.

Slush Pool is one name in the crypto industry that seems to have always been around. Based in Prague, this mining pool launched back in 2010 and not only became the first pool in history but also laid the foundation for one of the key segments of the entire industry. It’s great for beginners because of the simple interface and navigation. A huge advantage is that its servers are located all over the world, which guarantees a good ping.

The Country with the Largest Number of Bitcoin Miners

The most active mining is conducted in countries with suitable conditions that allow users to maximize the profitability of the process. Here are the main factors to consider:

  • Low electricity costs and the country’s energy potential. The lower the cost to mine a single coin, the more companies and miners are interested in mining. The country must have strong energy potential and an excess supply of electricity to further increase your mining capacity.
  • Cheap labor. Hired workers control mining on industrial farms, and the less it costs the company to hire them, the more profitable process is.
  • Low annual mean temperature. A low ambient temperature reduces the cost of cooling mining equipment and improves farm productivity by rapidly absorbing heat from the atmosphere.

It’s no wonder that, under such circumstances, most coins are mined in China. This country meets all the above requirements. The Chinese were the first to mine digital coins on an industrial scale and have held a leading position ever since.

Cloud Mining vs. Mining Pools

Cloud mining is still one of the best options for earning Bitcoin or altcoins this year.

Miners are bombarded with new services regularly, and companies offer to rent computing power on the internet. Given the growing success of digital currency and mining, there is a considerable number of scammers, so be careful. Make sure the platform is a real expert in cutting-edge blockchain solutions and mining hardware.

Don’t forget about the 51% threat. The potential attack would work if the bad guy managed to gain control of more than 50% of the network’s computing power. Ghash.io, one of the largest Bitcoin mining pools, was nearing 51% several years ago. For security reasons, users left the pool.

Rule number one: don’t risk your own money. A single entity having 51% is something you should avoid at all costs. Don’t wait around for something bad to happen.

Cloud is a more promising way of earning than mining pools. It enables users to mine precious coins without managing the hardware. This method requires less investment from the user, but the general principle remains the same: the more money you invest in the beginning, the more profit you will earn. Because the price is fixed at the time of purchasing power, if the crypto exchange rate increases, the cost of new contracts for cloud mining services will also increase.

How do you mine Bitcoin in the cloud? Here’s what you’ll need to do:

  • Create a Bitcoin wallet where you can automatically collect your rewards.
  • Choose a cloud mining service and register on it.
  • Buy (rent) processing power from the service (the contract is usually for two or three years).
  • Make a profit, the amount of which will depend on your hash power contribution to the pool.

Cloud mining has several advantages over classic mining:

  • You don’t have to purchase expensive mining equipment. You can rent it, which is much cheaper because there are popular hash power providers, such as IQMining, HashFlare, and Genesis Mining.
  • An adequate and uninterrupted supply of electricity is a must. The service is responsible for the safety of the equipment, so you don’t have to worry about anything.
  • Cloud mining is guaranteed to bring in a passive income, regardless of the serviceability of the equipment. In this case, any major service provides back-up capacity.

Does BTC Mining Make Sense in 2020?

Bitcoin mining began as a well-paid hobby for early adopters. Will mining maintain its uniqueness in 2020? On the one hand, the reward is decreasing, and the amount of resources and energy consumed is increasing. On the bright side, technology continues to advance and evolve. New ASICs spawn a wave of hype, their cost falls, and fresh IC chips promise unprecedented performance and features. A lot depends on the mining entry point.

The short answer is that everything depends on the amount of money you invest. Decide ahead of time how much money you would be completely okay parting with. Profitability depends on many factors, including the cost of electricity and equipment. Large farms earn an ROI that is higher than many other investments because it’s cheaper to buy ASICs in large volumes than individually, and part of the costs and time are distributed regardless of capacity. With large investments, ROI is higher. With small investments, it is much more profitable to invest in cloud mining and scale up after paying back the initial investment.

To understand the prospects of mining, it is worth gathering experts’ opinions on this issue. They claim that by the end of 2020, the cost of one Bitcoin could reach $15,000. Future forecasts seem impossible to reach. Some claim that by 2030, one Bitcoin will cost up to half a million dollars. That’s endlessly debatable, but at the end of the day, the Bitcoin exchange rate depends on only one factor: demand. It is like a house of cards. If you pull the “demand” card from the bottom, the supply collapses. For example, the government could ban crypto, making it illegal. The same trend can be already seen in many countries.

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