What is a Mining Pool? You must learn this before you start Bitcoin Mining!

What is a Mining Pool? You must learn this before you start Bitcoin Mining!

Lately, the crypto industry has enjoyed an explosion in popularity. The exponential increase in Bitcoin’s price in 2021 is one of reasons why. There are many who are now very interested in earning profits through cryptocurrency. Some have started investing in Bitcoin, some become crypto traders, and some have started to engage in Bitcoin mining.

Mining is one way to earn profit from Bitcoin, however it can be a complicated process. Mining requires considerable computational resources and monetary investment to get started. If a miner does not have sufficient resources to start Bitcoin mining alone, what can be done? Well, the solution is for the miner to join a mining pool.

What is a Mining Pool?

To mine Bitcoin, you must be able to solve complex mathematical equations in the Bitcoin blockchain system using sophisticated computing resources. Sometimes a miner has to work with other miners to combine existing resources due to lack of individual resources. The coming together of Bitcoin miners to pool computing resources is often referred to as a mining pool.

The concept of combining miners’ resources is a perfect way to get started if you are an amateur miner, or if you lack sufficient computing resources to start mining. The profits are distributed based on the resource contribution by each miner which makes it fair. Group mining makes the process more effective than individual mining.

How does a Mining Pool work?

If you decide to join a mining pool, the way it works is not much different from crypto mining. The only difference is that the process is now carried out in groups by combining the computing systems of each miner to make the process more effective. The merging of resources and mining tools is done to increase hashing in an effort to increase profits.

Each miner will donate their computing resources in an effort to find blocks in the system so that they are rewarded with coins. The prizes will then be distributed equally according to the computing power of each individual. In some mining pools, a miner must show the results of their work to receive the prize.

Mining Pool Method

Mining pools are distinguished based on their functions and methods. Here are some mining pool methods in the blockchain system:

  1. Mining Pool Proporsional
    The proportional pool mining method is the most commonly used method. The way this mining pool works is very similar to what has been described previously, namely miners contribute by providing computing resources for data processing to find blocks, the prizes are distributed evenly according to each miner’s resource contribution.
  2. Pay-Per-Share Pool
    This method is quite similar to the proportional pool mining method. The only difference is that the distribution of prizes is given at any time, and is not restricted to be distributed only after the block has been found. Miners who have already contributed can request for their reward at any time.
  3. Peer to Peer Pools
    Peer-to-peer pools are a type of pool created to prevent pooling in a pool. This pool integrates separate blockchains to prevent fraud or failure in their pool.

Benefits of the Mining Pool

Mostly individual mining often results in losses. This is because mining requires quite a lot of money and mining with limited resources is very difficult. The more limited the number of coins that can be mined, the more complicated the process. For this reason, mining pools is a more profitable strategy because the success rate is higher.

In addition, mining a pool also makes the process more effective and also requires fewer resources. This applies to hardware and electricity required. This way, miners do not have to pay exorbitant electricity costs. The chance to earn coins is higher if mining is done together with other miners.

Disadvantages of the Mining Pool 

In some blockchain systems, there are several mining pools that monopolize the mining system which contradicts the idea of a decentralized structure of the blockchain system. In this case, the larger mining pools usually diminishes the effort of an individual miner or a small mining pool. Although there have been many attempts to decentralize large pools, most of them still exist and are capable of influencing the mining protocol system of crypto.

In addition, the profit-sharing distribution also makes the profit obtained less than that of individual mining. However, if you don’t have enough resources, joining the mining pool is more beneficial. Some coins such as Bitcoin are now increasingly difficult to mine so the profits obtained will be even smaller when divided.

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