General

Mining Pools In Cryptocurrency

Mining requires using advanced computers to solve complex mathematical problems. This then put retail investors with no access to the computing equipment at a disadvantage. Due to the inadequate technical infrastructure to add more transactions to the blockchain, there is a limited chance to achieve successful submission of “proof of work.”

In a bid to proffer a solution to this glitch, mining pools were created. So let’s have a look into what mining pool is all about.

What Is A Mining Pool?

In the event of some individual miners not being able to have the required computing power to create a newly minted Bitcoin, it is normal, yet advisable for miners to join/form a group where computing powers would be merged. Having a mining pool is to ensure every miner is opportune to submit proof of work and have a reward increase.

There is a proportionate share of rewards among the respective contributors. However, computing powers are mined instead of fund combinations to improve investors’ return on investment.

To get perfectly into the game of mining cryptocurrency, mining pools are considered the best way for small investors. Often than not, rich computing power is favored by cryptocurrencies using proof of work. Because of this, there is a cohort of miners who have not been successful in mining cryptocurrency. To this end, a mining pool is the best option for regular investors who are not tech-savvy or financially buoyant.

How Do Mining Pools Work?

The following are the steps to joining a mining pool:

1. A new miner visits a website and downloads the software to join a mining pool

2. The downloaded software will be the connection between the mining pool server and the investor’s computer. Here, the investor’s computer becomes an extension of the mining pool’s digital node

3. The unused processing space of the investor’s computer is enhanced by the mining pool to aid the proof of work mechanism being carried out at the mining

4. The rewards earned from the successful mining of Bitcoin and other cryptocurrencies are stored in a common pool. These rewards in the form of funds will be transferred to every investor, depending on the computing power supplied by each of the miners

5. The rewards are usually denominated in the mined cryptocurrency, although it can in some instances be converted into a more acceptable digital currency like Bitcoin, or even cash.

Reward Distribution Among Miners

Every mining pool is characterized by mechanisms that enable reward distribution among miners. Some of the common distribution mechanisms are:

1. Proportional

With this method, miners are rewarded when a new block is mined. Payment, in this case, is proportionate to the computing power being contributed to the mining pool.

2. Pay Per Share

Popular as the method of reward distribution amongst miners pay per share is a guaranteed instant distribution. It is usually of the mining pool to make payment available for miners at any point in time. But the mining pool pays based on average contribution or even less.

3. Score-Based System

This is a reward distribution method that pays individuals who keep their shares for a longer time. A formula that is dependent on some factors is always used to share the rewards. Nonetheless, time is the major determining factor for reward distribution.

Conclusion

The mining pool avails retail investors with the mechanism to mine cryptocurrency and earn rewards. In essence, cryptocurrency mining has become popular as it continues to attract huge investors into the process and the crypto space.