Bitcoin mining pools provide a way for multiple parties to “pool” their efforts in mining bitcoin. Over time the difficulty level of finding a block first has risen (and with it the amount of computing power required to mine bitcoin), making it increasingly harder for an individual to get any block rewards.
One attractive option is to join a mining pool. In doing so, many network participants combine their hashing power (essentially, their computing power) into one collective effort. The block rewards are then split among the pool members in proportion to the amount of computing power they contributed.
How Does a Mining Pool Work?
The mining process for a proof-of-work cryptocurrency like Bitcoin involves many miners trying to be the first to solve or “find” a block. The first miner to find a block receives the rewards for that block in the form of newly minted Bitcoin. At the time of writing in 2021, the block reward was 6.25 BTC.
As more and more miners join the network, however, mining difficulty rises. This is thanks to one of the ingenious aspects of the Bitcoin protocol, known as the difficulty adjustment.
Approximately every two weeks, mining difficulty will rise or fall according to how much hashing power is currently on the network. The higher the hash rate, the more difficulty will rise, and the lower the hash rate, the more difficulty will fall.
In general, a good hash rate is a high one–because it helps keep a crypto network secure. But with today’s hash rate hovering near record highs (and tending to rise higher as the rising price of Bitcoin continues to make it profitable to engage in mining activity), finding a block as an individual miner has become almost impossible for all but the largest of miners with the most powerful equipment.
That’s where Bitcoin mining pools come in.
A miner pool gathers together connections from miners that could be all over the world and pools their hash rate together. This way, they are all mining at a higher level, giving them meaningful odds of solving a block. If they had been mining alone, their odds might have been slim to none.
After a block has been solved, the rewards will be split up among mining pool participants according to how much computing power each contributed.
This calculation is made using a set “Share Difficulty” for each miner and a “Share Time” for the pool. Basically, pools establish a time when hashes will be submitted by all participants while also assigning a difficulty to each individual miner (more powerful miners have a higher difficulty).
All miners will automatically send a “share” of their hashes at set intervals, e.g., every 5 seconds, with larger miners receiving a larger number of shares each time according to their higher difficulty rate. Pool participants are then paid out with block rewards in proportion to their shares.
Is a Bitcoin Mining Pool Worth it?
For the average person who wants to get into mining Bitcoin, a miner pool might be the only feasible option. But when it comes to asking “is a Bitcoin mining pool worth it,” it all depends on how the term “worth it” is defined.
For those who believe in the technology of Bitcoin and simply want to help the network thrive by processing more transactions, mining might be worth it even on a scale too small to be profitable.
For those who only seek to make a profit, however, the answer is more complicated.
Mining is generally a complex and difficult process for all but the most technical of crypto users. While there are services that help make the process easier for the average person to get into, there are still many nuanced factors that contribute to whether or not mining will be a profitable endeavor.
Miners have to take into account many factors, including but not limited to:
• Cost of equipment
• Cost of electricity
• The amount of time it will take to recoup equipment costs
• How difficulty adjustments might impact profitability
• How BTC price fluctuations might impact profitability
• When it will become necessary to buy newer, more powerful machines and sell old ones
These considerations have to be calculated and recalculated if a miner wants to stay profitable. There are a lot of unknowns, particularly the Bitcoin price and difficulty adjustment, which are constantly changing.
When Bitcoin was first created, the calculations involved in mining were so simple they could be accomplished by the computer-processing unit (CPU) of an average laptop computer.
Over time, the calculations became more complex, eventually requiring high-powered graphics-processing units (GPUs). Today, mining can mostly only be accomplished with advanced Application Specific Integrated Circuit (ASIC) machines. These are computers created for the express purpose of mining Bitcoin.
The hardware required is constantly evolving. Every so often, existing machines become obsolete due to difficulty adjustments. An ASIC that was powerful enough to be profitable six months ago might not be able to produce enough coins to match the cost of electricity needed to run that same ASIC today. When this happens, miners must acquire new, more advanced hardware.
Finally, it should be noted that mining is perhaps the most difficult way to acquire Bitcoin or any other mineable cryptocurrency. The easiest way is to simply buy cryptocurrency on a crypto exchange.
What is the Best Bitcoin Mining Pool?
For the most part, there’s not a whole lot of difference between crypto mining pools. Besides the small fee they may charge participants, pools only differ based on whether or not they are open to the public and what proportion of the network’s total blocks they mine on average.
Most of the world’s largest Bitcoin mining pools are located in China and include names like Poolin, F2Pool, and Antpool. Together, these pools mine about 43% of all new blocks, as of 2020.
How to Join a Bitcoin Mining Pool
One of the nice things about Bitcoin pools is that they allow users to get started mining with any amount of mining power. Whether someone wants to run a small hobby miner that might not even make a profit, or they want to run several large mining machines at once and try to make some serious coin, a pool can be used either way.
The process of joining a Bitcoin mining pool involves programming mining software to direct its efforts to a particular pool. You can do this in a few simple steps:
1. Choose which pool you want to join.
2. Add the stratum addresses of the selected mining pool to your mining software client.
3. Connect the wallet you wish to deposit mined coins into.
4. Configure your mining client for your chosen mining pool.
The information needed to complete this process will be provided by the pool itself.
A cryptocurrency mining pool provides a way for multiple smaller miners to come together and combine their hashing power. Mining at this higher collective hash rate benefits everyone in the miner pool.
It also benefits the network as a whole by keeping things more decentralized. Having more small miners scattered around the world keeps things distributed in a way that remains true to the principles laid out in the Satoshi Nakamoto white paper.
Those interested in learning about the mining process first-hand could consider experimenting with smaller mining machines and joining a mining pool. And more technical users who want to profit already know they have a lot of work to do.
For the average person looking to acquire Bitcoin, buying coins from an exchange might be a lot simpler. SoFi Invest® lets you trade popular cryptocurrencies, from Bitcoin to Litecoin, starting with as little as $10.
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