When cryptocurrencies were introduced, there was no literacy about these currencies; therefore, they were up for grabs. At that time, only a handful of people knew about the crypto concept and few companies accepted cryptocurrencies as a mode of payment.
However, over time, awareness increased among the masses and more companies started to adopt cryptocurrencies as a valid payment source. As a result, the demand for cryptocurrencies skyrocketed.
There are only two ways of acquiring crypto. One can get cryptocurrencies by trading with someone and the other way to get crypto is to mine them. The latter process is adopted by most people these days as a permanent source of income.
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In the start, crypto mining was very easy. Users could easily mine as much crypto as they wanted from their personal computers. As the demand for cryptocurrencies grew, it became harder and harder to mine them.
The mining of cryptocurrencies shifted from personal computers to the use of graphics cards. Later on, mining got even harder and the use of application-specific integrated circuits (ASICs) became the new normal. As ASICs are expensive, therefore, a concept of mining pools emerged. The basic concept of these pools is that miners from all over the world can pool their resources and form a mining community for better profits.
The first mining pool was formed in 2010. It was named Slush Pool. It was a bitcoin mining pool. Now, there are many popular crypto mining pools such as Zcash (ZEC), Ether (ETH), Bitcoin Cash (BCH), Bitcoin SV (BSV), and many more.
The advantage of mining pools is that it offers increased hash rates which ensure more earnings. Moreover, the mining pools offer the opportunity to mine a particular cryptocurrency consistently. This enables the miners to earn maximum rewards regularly as compared to what they would get if they were mining on their personal computers.
Understanding the cryptocurrency mining process
Before we get started with the crypto mining pools, it is necessary to get to know about the crypto mining process. Crypto mining relies upon proof of work (PoW). It involves solving different complex mathematical problems using computing power and giving the correct answer at the end. The correct answer is represented as the block’s hash rate. The successful problem solved at the fastest rate is rewarded.
These rewards are issued in the form of tokens. These tokens are time stamped; so that the new transaction block could only be mined after a specific time. For the mining of Bitcoin, this required time is around ten minutes. Moreover, the hash rate and complexity are adjusted according to the computing power offered by the mining network.
The hash rate increases proportionally with the computing power. In return, the complexity of mathematical puzzles also increases with each cycle. This means that with more computing power, comes more hash rate and with more hash rate comes more difficult problems.
This is the primary reason why cryptocurrency mining has gradually become hard and the miners require more computing power to solve this dilemma. This is why the miners have shifted from CPUs to ASICs
ASICs are also getting advanced with each passing day. Manufacturers are introducing new chips with more processing power with less noise and energy consumption. AvalonMiner 1166 Pro and WhatsMiner M32 are among the top ASIC miners available in the market.
Many miners are constantly purchasing more ASICs to increase their mining power. Whereas, others are looking to join various mining pools for a more stable income.
Steps in cryptocurrency mining process
There are five steps in mining cryptocurrency. First of all, look for a cryptocurrency that offers proof of work. Then look at GPUs or ASICs to mine that cryptocurrency.
Afterward set up a cryptocurrency wallet online. There are various online free wallets available for holding and trading cryptocurrencies. The last step is to configure your mining device by installing appropriate mining software. The other option is to join a pool as its details are given below
How do crypto mining pools work?
Crypto mining pools are a far better option for miners than individual mining. This is due to the reason that the mining pool utilizes the computing power of all pool members as one. In a crypto mining pool, all miners agree to dedicate themselves to mine a single cryptocurrency.
The basic idea is the same. The miners look for cryptocurrency that is based on proof of work. Then they pool their resources into mining one block. The premise is that when all the equipment is put together to mine a single coin, the hash rate increases exponentially.
With this increased hash rate the computing power increases and therefore, the block gets mined quickly. The mining pools are based on the philosophy that they rely on mining an entire block rather than mining small coins for stable income.
The reward for mining a single block of Bitcoin is 6.25 BTC. This means that if a pool can mine one block perfectly then they would get 6.25 BTC. The pool would then divide the BTC among their members proportionate to the computing capacity contributed.
This is a revolutionary idea because if a hundred miners pooled their computing power into mining BTC then they all would get 0.00625 BTC which is certainly a huge reward. Moreover, they also get an advantage that if they had mined individually then they never would’ve mined anything at all. That is why pool mining is a great idea.
Moreover, the mining pools have mining operators. The job of these mining operators is to record the pool activities. They keep a record of the mining capacity of all miners and keep liaison with them.
They are also responsible for looking over the group activities. They also convey important news to all members. Lastly, they also make sure that all members are rewarded with the share proportionate to their computing capacity contributed.
Furthermore, there is a pool fee that is deducted from the rewards of all members. This is done to keep the affairs of the pool in order and ensure the smooth functioning of the pool. This fee is also reserved for any promotional campaign the pool might have to attract more miners. This fee also covers other overhead costs. The fee also pays for the compensation for pool employees like pool operators.
There are different pool sharing mechanisms and a pool may adopt any of them. First of all, there is a proportional type, in which each member pays the fee proportionate to their contributed computing power.
The next one is the pay-per-share type. In this type, each member pays a standard fee which is independent of the contributed computing power. The last one is peer-to-peer. It is also called P2P and it is a completely decentralized type of pool fee.
The interaction between mining pools, individual miners, and the Bitcoin Protocol:
Since there are many types of pool sharing, there are also various types of interactions between individual miners and the mining pools.
The proportional mining pool relies upon pooling the entire computing power of all the members into mining a single block. Until a single block has been mined, there are no rewards for any members. Members only get rewarded if the pool has mined one complete block.
After mining one complete block, the exploits are converted into rewards. These rewards are then distributed among all the members based on their contributed computing power. In this type of pooling, members don’t get regular rewards. Rather, the rewards are distributed after mining a complete block. So the miners have to wait for the block to be mined completely, then they could get their rewards.
Pay-per-share pools are different from proportional pools because each member of the pool can encash the shares daily. In this pool system, the shares are rewarded to the members daily and the members could encash those shares whenever they want.
This type of share doesn’t reward the members when the entire block has been mined. Rather, the members are rewarded daily whether the block has been successfully mined or not.
The latest version of these pools is peer-to-peer. These pools are completely decentralized. This is done to make sure that the members are not cheating and gaining more rewards than they contribute.
In P2P, all activities of the pool are put together and integrated in such a way that it forms a separate blockchain. This prevents the operator and any other member from using the pool to their advantage. This type of pool is the most transparent one because it nullifies any chance of cheating on the part of the operator as well as members.
Parameters to consider while selecting a mining pool
While selecting the correct mining pool, the type of pool is of secondary importance. The matter of primary importance while selecting a pool is based on three facts.
First, make sure that the pool you are selecting is making any profit. This can be done by going through the official website of the pool. Moreover, you can also search for the reviews of that pool and see what the people are talking about the pool. Also, you can contact any member of the pool and get your queries answered.
Second, analyze the computing power needed for the pool. Calculate your cost of computing power. Research the equipment that is needed to be installed and calculate its cost. For instance, ASICs require less hardware and maintenance but they are expensive. Whereas, GPUs require more hardware and maintenance but they are cheap and readily available.
Lastly, calculate the energy cost required to maintain the installed equipment. Calculate the maintenance cost and all the overhead costs that you may require while mining for the pool. This also includes the fee of the mining pool.
Usually, pools charge almost 2% to 4% of the earnings. This is a reasonable fee if the payouts are handsome. Moreover, various daily paying pools deposit the share into the members’ accounts at a predetermined time of the day.
After considering all these variables, perform a cost-to-profit analysis and if the pool seems profitable then go it. If not, then look for other options available online for mining cryptocurrencies.
Types of crypto mining pools and how to start mining a pool?
There are various cryptocurrency mining pools on the internet. These pools are open to all miners. Miners from all over the world can join these mining pools and can share in the profits of these mining pools.
F2pool, Binance, Antpool, Slush Pool, and Pool BTC are some examples of renowned mining pools. These mining pools have the best track record when it comes to mining profits and members’ payout. These pools are completely transparent and don’t allow any scams or cheating on their platforms.
For instance, Slush Pool has been able to mine over 1.3m bitcoin since the day of its inception. The mining pool has helped over 15,000 individuals and small miners to get a profit by maintaining excellent hash rates. The hash rate of these mining pools one time reached 5%-8% of the total hash rate of the Bitcoin network.
The pool was first started by a handful of miners who wanted to mine bitcoin by putting their computing power together. Today, the mining pool is one of the largest miners of Bitcoin.
However, if one wishes to be a part of a mining pool other than a bitcoin mining pool then it is also possible. Various other pools mine other cryptocurrencies like Monero, Litecoin, Ethereum, and Ethereum Classic among others.
These mining pools are also open to miners from around the globe. Any miner can join them by agreeing to their terms and conditions.
F2pool, 2Miners, Etherium, Ezil, and Nanopool are some examples of Ethereum pools. These are more established mining pools and offer transparency and guaranteed payouts. These mining pools also offer enhanced hash rates and comprise hundreds to thousands of members.
Choosing cryptocurrency to mine:
One can choose cryptocurrency to mine by looking at three factors. First of all, check the price stability of the coin you intend to mine. Look at the price chart of the coin with a period range of last week, then last month, and then the last six months. This will give you a clear idea of whether the cryptocurrency you are trying to mine is stable or not.
Secondly, look for the hash rate required for a decent payout regularly. If the hash rate required is low then less computing power is required to mine the coin and therefore, less cost is required to set up the mining rig and maintain it.
Lastly, be watchful of the fee of the mining pool. Usually, the mining pools charge up to 4% of the earned profit. The fee of the pool should be within this limit and also make sure that the pool is legit or not. Check for customer reviews of the pool and be vigilant about any recent development.
Tips for a better mining experience:
Whether you are mining individually or in a pool, here are some tips that may prove to be useful.
Make sure that your equipment is connected to a fast internet connection and electricity supply is uninterruptible. Also, make sure that the entire hardware is dedicated to crypto mining and nothing else. This boosts the computing power and will enhance the hash rate. Lastly, the more sophisticated the equipment, the better results in mining.
Advantages and disadvantages of a crypto mining pool
The mining pools enable the small miners to get into the mining world and be a part of a larger mining set-up. The mining pools enable the individual miners to compete with the big industries by joining their computational power
Moreover, the miners can get regular payouts on their investments. This encourages them to invest more in the field. It also encourages new miners to explore the mining field.
There are different types of mining pools. The miners can choose the type they want to be a part of. Similarly, being a part of the mining community, the new miners could learn from professional miners and get a head start in their mining experience.
However, there are some disadvantages of mining pools as well. Some mining pools are not safe. For instance, a mining pool called Poolin recently suspended its BTC and ETH withdrawals due to liquidity issues.
Moreover, the actual earnings of the pool may be less than the claimed earnings. Therefore, miners may face difficulties meeting their profit-to-cost ratio. Lastly, the equipment needed for mining is expensive and it requires a lot of maintenance as well. Moreover, an increase in energy prices can also affect profits.
Therefore, one needs to carefully gauge all these parameters before becoming a part of the mining pool. One needs to be vigilant enough to look for all these variables, carefully weigh the advantages and disadvantages of pool mining, go through data available on the internet and then perform cost-to-profit ratio analysis and move forward with a plan.
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