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How Bitcoin mining pools work and how much you can earn from joining them?

Bitcoin mining requires purchasing expensive specialized cryptocurrency hardware and paying high energy bills: it is not that easy to do a better job of mining with just a laptop for a regular user.

Moreover, Bitcoin’s network mining difficulty rises and a block reward halves every four years (now equals 6,25 BTC). The next Bitcoin halving is expected to take place in 2024 and the reward will decrease down to 3,125 BTC. This process is called Bitcoin halving and it is built-in in the Bitcoin blockchain’s structure by its author.

Even investing $3 000 in specialized Bitcoin mining hardware called application-specific integrated circuit devices, or ASICs does not guarantee that you will make money from your investments.

However, there is still a very slim chance of an individual mining an entire block. A solo Bitcoin miner solved a valid block in January 2022 earning a reward of BTC 6.25 (equal to $270 000 at the current price). A hash capacity achieved 126 TH/s meaning the computational power was 126 trillion data transactions per second. But still, the lucky miner only had 0.000073% of the total hash rate. To mine an entire block under similar circumstances today miners would need 26 years total. 

The miner is part of a solo mining pool called Solo CK and he has to pay a 2% fee to the pool.

Later in April 2022 yet another solo-miner of the same Solo CK mining pool with only 60 TH/s got the transaction fee reward of BTC 6.25 (half than prior).

In the pool mining process, individual miners join forces and combine their computing power to increase the chances of mining a block. When a pool successfully mines a block and the reward is paid out, it is then split between the mining pool’s members according to the proportional computing power share.

Let us imagine a group of 10 miners with 0,1% of the computational power each. This means a 1 in 1,000 chance of solving a block. 144 blocks are solved a day, each miner solves 1 block a week.

If they all enter the mining pool and start working together to increase their chances of finding a block at the group level, their computational resources would enhance their joint processing power up to 1% and help to achieve the desired output faster solving 2 blocks a day or 14 blocks a week.

Most commonly, a mining pool assigns a coordinator for the pool members. The functions involve managing the pool members’ hashes, looking for rewards through pooled efforts of available processing power, and assigning reward shares to each pool member.

How do mining pools share rewards?

In most cases, pool members are rewarded using different methods, which include the three most popular: PPS, FPPS, PPLNS.

PPS (Pay-per share): means each miner in the pool will receive an instant fixed amount for every ‘share’ they submit. The method allows payout solely based on accepted shares contributed by the pool member. If the pool needs 1,000 shares to solve a block, a member miner would get rewarded 0,00625 BTC per each share (at the current network mining difficulty 6,25 BTC). The miners receive their earnings from the pool’s existing balance whether the pool finds a block or not.

FPPS (Full Pay Per Share): in this mode, the block reward is also settled when the new block is mined. The method allows instant payout to all the pool members. The pool will also pay transaction fee reward to the miners.

PPLNS (pay per last n shares): in these pools, miners also get paid when a new block is mined, but the reward depends on valid shares (some predetermined number, the mathematical N). In other words, miners get rewarded for the shares submitted within the defined period. These vary based on network difficulty and the income is caused by the lucky value.

There are other methods of cryptocurrency mining like solo-mining meaning that you need to take care of the entire mining process on your own. The lucky miners mentioned above are good examples of solo-miners.

What to consider before choosing a mining pool?

  • Mining pool power. Join a pool with no less than 200 members to have faster and repeated incomes (desired output solving no less than 1 block a day).
  • Mining infrastructure compatibility. You must ensure that the mining resources you use are compatible with the requirements of the pool.
  • Schedule. You adhere to the schedule that must correspond to your needs and life capabilities. In case of constant failures and disruptions miners are banned from mining pools. 
  • Location. The connection depends pretty much on the distance your mining hardware are from the pool’s server. Choose a pool relatively close to your location. 
  • Payout scheme. Choose a pool with higher payment thresholds: the minimum payout to all the pool members shall be achieved within 2-3 days of mining.
  • Reputation. Join a pool with 90% positive reviews, consider what other miners are saying about these particular pools.

What’s more profitable: mining pools or eco-friendly Bitcoin mining?

Mining pools are a good way to mine Bitcoin and earn money. However, participants in a mining pool donate their special mining expensive hardware, blockchain experience and high electricity consumption as well as a responsibility to the group and the project.

Moreover, Bitcoin’s network mining difficulty increases and a block reward is designed to decrease with time. Today you earn $100, tomorrow your income halves double down to $50.

Masternode eco-friendly mining is much simpler: it requires a basic internet-connected laptop or a smartphone. No need to worry about responsibilities and schedules. Bitcoin halving and hash rates have nothing to do with eco-friendly mining.

The only definition to know is the Proof-of-Stake (PoS) consensus mechanism that does not require special equipment, making it possible to mine BTC without using large computing power. Participants are required to spend money and dedicate financial resources to the network by keeping coins on a special account. The reward is higher and since there is no need to purchase ASIC-mining equipment, build mining pools, and pay high energy bills, all the revenue you get is your net income. 

For example, to get a reward of $6 500 per year joining a mining-pool, you have to purchase BITMAIN AntMiner S19 Pro with hash rate 110 TH/s ($11 885). In case of investing this amount of money in eco-friendly Bitcoin Additional masternodes, at the current price of BTC = $39 530 and a reward of 65,21%, you will earn $7 918. 

Read next how much you expect to profit with Bitcoin Additional here  

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