Mining Pool

A mining pool is a service that combines the computing power of many independent miners so that, as a group, they find blocks often and then share the rewards according to how much work each member contributed. Pools exist because crypto mining on a large network is a lottery: a single machine might go years without winning a block, while a pool wins regularly and turns that luck into a steady income stream.

Almost all mining on Bitcoin (BTC) and other large Proof of Work (PoW) networks now goes through pools. They are distinct from staking pools, which combine coins rather than computing power on Proof of Stake (PoS) networks.

Think of an office lottery syndicate. Buying a single ticket each week, you might never win. Pool your money with thirty colleagues, buy thirty tickets, and the syndicate wins small prizes far more often; each person takes a share based on what they put in.

A mining pool is that syndicate for computers. Members point their machines at the pool, the pool keeps score of how much each one contributed, and whenever any member finds a block the prize is split. The organiser takes a small cut for running the syndicate and keeping honest records.

The pool operator runs a full node, picks transactions from the mempool and builds a block template. Members' machines receive work from the pool and search for a valid hash by varying the nonce and other fields.

The pool cannot see how hard a member's machine is working, so it uses shares as evidence. A share is a hash that meets an easier target than the real network mining difficulty. Shares do not win blocks, but they are found at a rate proportional to a miner's hashrate, so counting them measures each member's contribution. Occasionally one of the shares also meets the full network target; the pool then broadcasts the block and collects the block reward into its own address before distributing it.

Most pools communicate with miners using the Stratum protocol, which the first pool helped popularise. A newer version, Stratum V2, lets miners build their own block templates so that the pool operator no longer chooses which transactions go into blocks.

Pools differ mainly in how they convert shares into money and who carries the risk of bad luck:

• Pay-Per-Share (PPS). The pool pays a fixed amount for every valid share whether or not the pool finds blocks, carrying the variance itself and charging a higher fee for doing so.
• Full Pay-Per-Share (FPPS). Like PPS, but the payment also includes an estimate of transaction fees, not just the subsidy.
• Pay-Per-Last N Shares (PPLNS). Members are paid only when the pool finds a block, split across the most recent shares, so income follows the pool's luck.

Whatever the method, a member's expected income is roughly:

• $E$ is the member's expected earnings over a period.
• $h$ is the member's hashrate and $H_{\text{pool}}$ is the pool's total hashrate.
• $N$ is the number of blocks the pool finds in the period and $R$ is the reward per block.
• $f$ is the pool fee as a decimal.

Worked example: a miner with 200 TH/s in a pool of 50 EH/s (50,000,000 TH/s) holds 0.0004% of the pool. If the pool finds 20 blocks in a day at 3.2 BTC each and charges 2%, then $E = 0.000004 \times 20 \times 3.2 \times 0.98 \approx 0.00025$ BTC, about 25,000 satoshis.

The first Bitcoin pool was launched in late 2010 in Prague by Marek "Slush" Palatinus, initially as the Bitcoin.cz Mining Pool. It was later called Slush Pool and, from 2022, Braiins Pool. Pooling spread quickly as difficulty rose and hobbyists with graphics processing unit (GPU) rigs and early Application-Specific Integrated Circuit (ASIC) machines found solo mining hopeless.

Because a pool decides what goes into its blocks, a few large pools can hold great influence. In June 2014 the GHash.io pool briefly controlled more than half of Bitcoin's hashrate, raising fears of a 51% attack; it pledged the following month to stay below 40%, and miners moved elsewhere. The episode is still cited in debates about centralised versus decentralised systems. Individual miners can switch pools in minutes, which is the main check on a misbehaving operator.

The pool model has also been used as cover for fraud. In December 2019 US prosecutors in New Jersey charged three men over BitClub Network, which they alleged had taken at least $722 million from investors by selling shares in a supposed mining pool while reporting invented earnings; it was presented much like a Ponzi scheme. Pools that sell hashpower to outsiders shade into cloud mining, which carries similar risks.

• Bitcoin Wiki: Pooled mining
• Braiins: Bitcoin mining since 2010
• US Attorney's Office, District of New Jersey: BitClub Network charges