Choosing a Bitcoin Mining Pool
My goal with this post is to help you understand what mining pools are, why they exist, how they work and the differences between the various pools so you make an informed decision on which mining pool is best for you.
In this post I’ll cover;
What are mining pools?
How mining pools work?
Mining pool payouts explained
The most prominent mining pools
Decentralized mining pools
The future of mining pools
In 2009 when the Bitcoin network first launched, bitcoins were worth very little, so very few people mined them. In the first two years of bitcoin's history, 2009-2011, most blocks were mined by Satoshi Nakamoto or Hal Finney and a few others.
Because few people were mining during this time, the amount of hashrate required to find a block, or the difficulty, was very low and could even be done with a regular PC CPU or GPU setups.
What are mining pools?
In a mining pool, miners connect to a central server and pool their hashrate.
Mining Pools operate as communication nodes to coordinate the hashrate and distribute mining rewards amoung the miners that are part of the same pool.
The roots of mining pools trace back to the early days of Bitcoin with the goal of addressing the unpredictability of solo mining.
Solo mining is good for miners that care about privacy and want to mine Bitcoin anonymously or for large mining farms that don’t want to be part of a 3rd party pool and have enough miners that they just create a private pool.
Solomining has great rewards if you find a block but the chances are also very low. Especially if you have only a few miners.
That being said, some miners are lottery focused with old/inefficient machines that will likely never earn any rewards through regular mining leave it mining solo just in case it finds a block. “Fingers Crossed”.
Marek Palatinus, nicknamed Slush, successfully implemented the pooled mining concept in 2010 and the 1st mining pool, initially called Bitcoin.cz Mining Pool, launched. It eventually turned into Slush Pool and is now just called Braiins Pool and offered miners a more consistent flow of smaller payouts compared to the sporadic, larger rewards of solo endeavors.
How mining pools work?
At its core, a mining pool is a collaborative effort where miners contribute computational power(hashrate) to solve blocks and confirm transactions.
Mining pools use various operating and payment models, including Pay-per-Share (PPS), Proportional, and Pay-per-Last-N-Shares (PPLNS), each influencing how rewards are distributed among participants.
Pools therefore compete for hashrate based on latency, ease-of-use, payout reliability, and associated networking services. They want you bringing your hashrate to their pool so they can increase the chances of finding a block and also collect fees to operate the pool.
The key benefit of joining a mining pool is the steady income stream and lower technical barrier for miners but it comes with trade-offs. While payouts are more regular, they are smaller and subject to fees that accumulate over time.
There is also the centralization debate that looms large around the big mining pools, challenging the decentralized ethos of Bitcoin.
The top two Bitcoin mining pools make up about 176EH/s of the 472 EH/s in the whole network(Nov 2023).
