Bitcoin – Mining Pool

A mining pool is a joint group of multiple miners who share the processing power over a network to mine the new blocks and split the reward proportionally to the amount of work they contributed.

In a mining pool, hundreds or thousands of miners may be participating in a pool, and they communicate through some special protocols. The pool hoster can use one of the mining pool methods listed below for work assignment and reward sharing.

Mining Pool Methods

Basic Setup:

• B is the per block reward minus the pool fee. It means whenever a miner participates in a block mining pool. Then there is a pool fee that needs to be paid by the miner. Here, B is the effective reward received by an individual miner for mining a block.
• is the probability of finding a block in a shared attempt. , where D is the block difficulty. Whenever multiple miners try to do that, and if D is block difficulty, then is the probability of finding a block.

There are multiple mechanisms for the distribution of share, and these are as follows:

Pay Per Share (PPS)

In this scheme, there is an instant guaranteed payout to a miner. Whenever a miner joins the mining pool, the miners are paid from the pool’s existing balance, and the miner share is calculated as . Here, is the amount of money given to every individual miner joining the pool. However, the miners get almost equal payment in this architecture, but the risk is at the pool operator. It may happen that the pool is not able to find out any new block, but this scheme follows instant and guaranteed payment to the participant who is participating in this pool. It may always happen that the pool is not getting any reward, but still, the pool operator needs to pay the individual miners.

Proportional Share

In this scheme, the miners earn the share until the pool finds a block at the end of the mining round. It means every mining round, whenever the pool is finding out a block. The total share will be divided by the individual miners: , where n is the amount of individual work done, and N is all shared. The payments are made once a pool finds out a block.

Pay per Last N Share (PPLNS)

This scheme is similar to the proportional sharing method, along with the Miner’s reward is calculated based on N’s last shares, and the Miners get more profit for a short round.

Mining Pools – Pros and Cons

The major advantage of the mining pool is that the small miners can participate in a mining procedure and have a kind of predictable mining like wherever there is a large number of miners who are participating in the mining procedure. There is a high probability that the pool will be able to find out a new block.

The disadvantage is that this kind of architecture leads to centralization, like only a list of mining pools can control the entire network. Gradually, independent miners will be forced to join the mining pool or discourage from participating in the mining procedure because of no guaranteed income from the mining.

Summary

In this note, we have seen the mining pool, the different mining pool methods, and the pros and cons of having the mining pools in the bitcoin network.

References

• NPTEL lecture series on Blockchains Architecture, Design and Use Cases by Prof. Sandip Chakraborty, IIT Kharagpur.

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