Why should you choose a PPS Pool?
Before we’re able to explain what PPS (Pay Per Share) is we need to explain some mining key concepts.
Block Reward — The block reward simply refers to the new coins distributed by the network to miners for each successfully solved block. In Bitcoin the miner that successfully finds a block is rewarded 12.5 BTC for their efforts.
Difficulty — is a value used to show how hard is it to find a hash that will be lower than target defined by the blockchain protocol. Difficulty adjusts to ensure that blocks are mined at a stable predetermined rate.
Hashing Power — A hash is the output of a hash function. Hash rate is the speed at which a computer is completing an operation in the cryptocurrency’s code. Therefore, the amount of hashes are measured in hashes per second. A higher hashrate increases a miner’s opportunity of finding the next block and receiving the block reward.
Luck — The luck of a mining pool is probabilistic in nature. Imagine that each miner is given a lottery ticket for a certain amount of hashing power they provide. If you were to provide 1 TH/s of hashing power and the overall hashing power in the network is 10 TH/s then you would receive 1 of 10 total lottery tickets. The probability of you winning the lottery (finding the block reward) would be 10%. So for every 10 blocks found you should statistically find 1 of them. Now imagine that you found 2 out of the 10 blocks, this means that you found a block earlier than you statistically should have on average. You are lucky! Now imagine you found 0 out of 10. This would make you unlucky. Over the long run statistically you should receive on average 1 out of 10 (or 10%) of blocks, but there is short term variance. For a more in depth article on calculating luck check out this article.
Mining Pool — All in all, mining is attempting to unlock each block to get the reward that is in it; the more attempts (hashes) you can perform per second the higher the chances you have to get the reward (i.e. the more lottery tickets you have the higher your chance of winning the lottery). Because miners by themselves typically don’t have enough hashing power to consistently find blocks they join a pool that pools everyone’s hash power and combines it to hash blocks. With more hashing power it is easier to find blocks. Then, the reward is split among the miners based on the amount of work they contributed and a small fee is given to the pool operator.
So, what’s PPS ?
Imagine that a miner submits 1 lottery share to the the pool operator. Even if the pool doesn’t win the lottery the miner will still get paid 10% of the block reward (if there are 10 total tickets). The miner gets paid on what is statistically probable rather than what actually occurs. Now imagine that the miner submits 1 ticket and it happens to be the winning ticket. The miner still only receives 10% of the block reward.
What this system ultimately does is take out the “luck” and hence variance in a miners payout. Instead the pool operator absorbs all the risk of variance. In the long-run it should balance out to the statistical mean (obtain 10% of blocks) but in the short-run there can be a lot of variance.
Logistically, the payout to the miner is offered immediately from the pool’s existing balance of the cryptocurrency. The possibility of cheating the miners by the pool operator and by timing attacks is completely eliminated.
This payment structure is riskier for pool operators given the variance. Usually only large pools with a lot of reserves can afford to take on the variance risk. Other pools compensate for the higher risk taken by charging a higher fee.
PPS Formula = (1 / Network Difficulty * Block Reward)
As a general rule of thumb the formula above can be used. It’s important to keep in mind that there are some tweaks that have to be made per algorithm depending on how they define difficulty.
You can track the value of all FPPS pools on Hashrate Index.
Why Luxor Pools are PPS?
Because PPS is the most robust and transparent payout structure. We’re always working on improving our infrastructure. PPS forces us to be accountable for our luck. If a pool is PPLNS, the pool operator doesn’t care if the pool has good or back luck, they get their percentage regardless. It’s the miner who suffer. By choosing Luxor’s True PPS, we’re saying “We’ve built a rock solid pool that we guarantee is profitable”.
Other main reasons for choosing a PPS Pool are:
- Gives miners peace of mind that they’re being paid what they are supposed to earn.
- The possibility of the pool operator cheating its miners is eliminated. PPS Formula = (1 / Network Difficulty * Block Reward)
- Provides stable payouts while the pool operator assumes luck variance.
- The pool operator covers for orphaned and rejected blocks.
- Miners can calculate and have statistics based on their mining power.
Happy Hashing!
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