Basic mining pool concepts
All the currencies that work under the proff of Work protocol are minable, however, the profitability varies due to different factors such as equipment, electricity costs or services, space rental, among others.
In the early days of mining, all that was needed was a basic personal computer with an Internet connection, creation and configuration of the wallet and the installation of the app in charge of generating new tokens through a computational process in order to solve the algorithm.
However, currently there are many people working with specialized equipment to obtain the reward at the time of the solution and creation of the new block, so it is increasingly difficult to perceive a profit with a personal computer, it is practically necessary to own equipment with high processing power either in gpu or gdu. Making investments much higher.
From the aforementioned, it evolved into an infrastructure called mining pools that basically allows miners to combine resources to generate a better opportunity in the action of earning rewards that will be shared among participants.
Available in blockchain protocols that employ a proof-of-work (PoW) consensus mechanism, this mining process requires the deployment of application-specific integrated circuits (ASICs) in the form of large teams in order to complete the complex nature of mathematical problems in the time required to mine a block.
Slush Pool is the first mining pool and works with Bitcoin, now there are many popular mining pools for cryptocurrencies such as Ether (ETH), Zcash (ZEC), Bitcoin Cash (BCH), Bitcoin SV (BSV) and more to choose from.
With their own dashboards that provide information on things like mining hardware status, current hash rate, estimated profits and other parameters, mining pools offer cryptocurrency users the opportunity to participate in the mining process of a particular cryptocurrency on a consistent basis and earn regular rewards in proportion to the computing power contributed.
Understanding the cryptocurrency mining process
First, for any PoW blockchain protocol, the process of mining its native token involves solving mathematical problems using computational power, where the correct answer is represented as the hash number of the block, and rewards are presented to the entity that solves the fastest.
These rewards are presented in the form of native tokens, with the mining process programmed such that a new block of transactions is mined after specific durations of time. In the case of Bitcoin, this time is about ten minutes and the complexity, or hash rate, is adjusted based on the amount of computing power available on the network.
The more computing power, the higher the hash rate increases proportionally and requires even more computing power to have any chance of solving the mathematical puzzle within each time cycle.
This is why cryptocurrency miners have moved from using personal computers or CPU miners to using graphics processing units (GPUs) and have now completely switched to custom-built equipment that uses hundreds of ASICs to mine cryptocurrencies.
These ASIC miners continue to evolve and use the latest chip technology to provide a hash rate that can increase the chances of mining Bitcoin or any other cryptocurrency. Depending on the hash rate, power consumption, noise produced, and profitability per day.
Whether releasing new tokens into the system or verifying and adding transactions to the ledger in the form of blocks, the mining process becomes harder as more miners compete for it.
Operation of the pools
A cryptocurrency mining pool is a set of miners working together, the mining pool operator manages activities such as recording the work done by each pool member, managing their hashes, allocating reward fees to each member and even the work to be done individually.
In return, a mining pool fee is deducted from the rewards distributed to each member, which is calculated based on the pool’s sharing mechanism and, depending on how these cryptocurrency mining pools distribute the rewards, they can be of the proportional type, the pay-per-share type or the fully decentralized peer-to-peer (P2P) pool type.
In a proportional mining pool, miners who contribute their computing power receive shares until such time as the pool succeeds in mining a block, which are then converted into rewards proportional to the number of shares received by each pool member.
Pay-per-share pools differ slightly from proportional pools in that each member can collect the shares received on a daily basis, regardless of whether the pool has been successful in mining a block.
Last but not least, P2P cryptocurrency mining pools are more advanced versions in which all pool activity is integrated as a separate blockchain to prevent the operator or any individual entity from cheating pool members.
Regardless of the type of pool one chooses, it is important to check whether the cryptocurrency mining pool is cost-effective after analyzing the required computing power, the electricity costs involved, the applicable mining pool rate and the payout frequency of cryptocurrency mining pools.
The choice of which cryptocurrency to start mining with depends on the stability of its price, the hash rate required to consistently earn decent rewards, and the mining platform fees that will be subtracted from the total earnings.
In addition to registering with a cryptocurrency mining platform, individual miners will need to have mining hardware in the form of one or more ASIC miners, mining software installed, and a secure cryptocurrency wallet to store rewards and other cryptocurrency holdings for transactions.
The more capital invested in advanced mining equipment, the greater the chances of higher rewards, as long as all the hardware is dedicated to cryptocurrency mining.
In addition, having a fast Internet connection and an uninterrupted power supply are essential to perform the work assigned by the mining pool operator at the fastest possible pace.
Advantages
- Cryptocurrency mining pools offer the possibility to earn rewards to small miners.
- It is possible to have a regular income.
- It allows you to grow in investment and profitability.
- Periodic payments.
- Guaranteed participation, even if you do not have large equipment.
Disadvantages
- Not all cryptocurrency mining pools are safe, because they can have low liquidity, generating a possible disconnection.
- The real earnings of each member of the pool are considerably lower than those obtained in the case of being a single miner.
- The return of capital may be a little slower.
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