Mining pools

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How does the pool work

When it comes to cryptocurrency mining, you cannot translate the words “miner” and “pool” literally, like “miner” and “pool”. They have already received their filling in Russian. A “miner” is one who is engaged in mining bitcoins, and a “pool” is a vital thing for cryptocurrency mining.

The process of selecting a block signature, otherwise called mining, has great computational complexity (difficulty). It is one of the most important parameters for the miner, since his income depends on the change in complexity. During the existence of Bitcoin, complexity in the long term has been steadily growing, therefore, it is increasingly difficult for the miner to calculate the block signature alone.

The Bitcoin network is built in such a way that a reward (first 50 BTC, then 25, and soon only 12.5 BTC) for a valid block signature is the only cryptocurrency issue method. In addition to this fixed value, the miner who found the block receives the amount of commissions included in all transactions included in the block. Now these are tenths of bitcoin, but in the future, perhaps, payment for transactions will exceed the emission component.

While the complexity was not high, there was a single, so-called “solo” mining. The solution to the computational problem could be obtained even on the processor of one computer, so each miner worked alone and received a reward in the form of a whole block.

With increasing complexity, solo mining has become a thing of the past. Now, even with the most powerful specialized equipment, you can mine for years, but you can’t find a hash to sign the block — hundreds of such devices are needed. Therefore, when Bitcoin gained popularity, co-mining technology appeared – pooling many independent miners.

A “mining pool’ is a server that distributes the task of calculating the block signature between all connected participants. The contribution of each of them is evaluated using the so-called “share”, which are potential candidates for a precious signature. As soon as one of the “ball” hits the target, the pool announces the readiness of the block and distributes the reward.

When calculating the remuneration, all accepted balls are taken into account (there are nuances in some payment systems), regardless of whether the ‘ball’ has turned into a block signature or not. This is what ensures the fair distribution of the mined coins. A miner with a small capacity can work for a very long time without finding a single block, but at the same time will receive its share of the total pie – he is paid for the probability that exactly one of his decisions will turn out to be correct. Sometimes this really happens.

In this case, inevitably there is a rejection of some ball. From 0.5% to 1.5% of potential results are lost due to the obsolescence of the ball (stale share) and the inevitable technical errors. Miner’s “payroll fund” is calculated as follows:

  • The pool sets the minimum complexity of the ball that it takes. The value is usually an integer power of 2. It is chosen so as to minimize traffic from the user, while the flow of decisions must remain stable. For modern devices, the minimum accepted complexity is usually set in the range 16-128, and the optimal operating value is in the range 64-512. As a rule, this complexity is set manually by the miner or automatically selected by the server. It has nothing to do with the real value of the complexity operating in the network and is used only for internal accounting.
  • Then, the pool summarizes all the balls received from the user over a period of time and multiplies them by the established working complexity. Thus, it turns out that the miner sent balls with complexity 1, but in huge numbers. This is the basic value for calculating the earnings of miners: the number of solutions of complexity 1 (Diff 1 shares). When the pool finds a block and receives a reward (25 BTC + commissions), the server divides this value by the number of complexity ball 1 received from all miners, and then multiplies for each miner by the amount of decisions made from it.
  • After 120 confirmations of the found block, the pool gets the opportunity to dispose of the extracted bitcoins and distributes the reward to the accounts or wallets of miners minus its commission, if any. Large pools make payouts faster, often upfront – this is one way to attract more miners. When withdrawing from the pool, one should take into account the size of its commission, as well as the size of the commission for withdrawing funds.

Block Reward Distribution

Each pool has its own rules and payment modes. For the service provided, the pool receives its share, paying off the miners in one of thirteen systems.

Major reward systems

PROP (Proportional) is a proportional model in which the block reward is divided strictly proportionally to the share of the ball sent by each miner. As soon as the block is found, the counter of the received ball is reset and the counting starts from zero. This is the simplest system, but payments are extremely unstable, especially for small pools. If a miner came and went during the “long” block, he will receive very little, and if he mined in a successful period, he can receive a reward several times larger than the average calculator.

 PPLNS (Pay Per Last N Shares) is also a proportional distribution, but more smooth. One of the most difficult systems to understand, at the same time the most effective for both the pool and stable miners.

Payment is calculated for the number of balls sent not for the time elapsed between the two found blocks, but for a fixed number of certain time intervals called ‘shifts’ (shift – shift). The number and duration of ‘shifts’ each pool chooses at its discretion.

Payments occur after the pool finds the next block. The size of the reward is much less dependent on the time intervals between the blocks. If the block is not located for a long time, then the payment grows smoothly, if the pool is lucky and the blocks are poured, as if from a cornucopia, then the payment for each individual block is reduced, but during the N * duration of the shift the payout amount remains more or less constant.

Consider a simple example. The PPLNS system with 10 ciphers operates on the pool, each lasting 1 hour. The user device hash is 1/100 of the total pool power.

The miner begins to receive a full reward similar to the proportional system only after he has worked at the full speed of his devices for more than 10 hours. If at the time of receiving the block by the pool he mined for only 1 hour, he will earn only 10% of his share in proportionate distribution, if 3 hours – then 30%.

It would seem that pure robbery. But if the user stops working on the pool, then in the next 10 hours he will still receive a reward – after 3 hours – 70% of the ‘normal’ share, after 5 hours – 50% and so on. Accrual will completely stop after the same 10 hours.

Let’s say that in 10 hours the pool found 3 blocks. In this case, the miner will receive 25 BTC * 3/100, i.e. 0.75 BTC. If in 10 hours one block is found, then the actual income of the miner will be only 0.25 BTC. But, unlike the PROP system, the balls ‘accumulated’ by him are taken into account for another 10 hours, and if several more blocks are quickly produced, they compensate for the unsuccessful period.

That is, the PPLNS system smooths out the influence of the randomness factor, but cannot completely eliminate it. It is best suited for miners who constantly work on the same pool. Another of its advantages is low or zero commissions, since the pool does not bear any risks to users, paying only actually mined. Some pools include in the distribution and commissions received from transactions. PPLNS has several varieties that do not fundamentally change the scheme.

PPS (Pay Per Share) – a fixed payment for each ball accepted by the pool. In this case, the pool assigns a fixed fee to the ball. It is calculated on the basis of a block reward divided by the current complexity in the network, and then it is multiplied by the number of balls sent by the user with complexity 1. From the user’s point of view, such a system is the most “fair”, since all work done is paid, regardless of its result – that is, it doesn’t matter if blocks are found or not.

But for the pool, this approach carries serious risks – since long periods between blocks, orphans (blocks not accepted by the network) lead to losses – the pool pays the reward to the miners in advance from the reserves, but does not receive income. Therefore, on pools with the PPS system, a high commission is usually set – usually from 3 to 7%.

PPS mode, in turn, has varieties:

SMPPS – each ball is valued at face value, but due to the delay before payment, so that the pool can find blocks to replenish the reserve. The interval is usually 120 blocks (the standard number needed to allow you to spend bitcoins from an emission transaction). Usually pools with this accrual method do not charge a commission. Examples: Eligius (0%).

RSMPPS – when a block is found, the reward is distributed in proportion to the number of ball received from miners for the last block, without taking into account the debt for the previous blocks.

If after this distribution something remains, the balance is distributed in proportion to the debt for the penultimate block. If after that something remains, the debt is paid on even earlier blocks.
Such a payment system is beneficial for new members of the pool, since the debt on the old blocks is paid on the residual basis and does not affect the size of payments to new participants. But the accumulated debt can become critical for the pool when halving the block reward, as happened with tzod.ru. Now no large pool uses this mechanism.

In the long run, for a miner working on one pool, it does not matter which payment system is used. Of course, systems without commissions are more profitable.

On the Comparison of mining pools Bitcoin Wikipedia page, you can find the most comprehensive table comparing pools with their characteristics. But it is not updated very often and many data may be outdated. Many of the pools that started first have already closed.

P2Pool – decentralized pool

Often, hackers broke into pools, because they knew that there was always a lot of money on their wallets. It happened that the pool administrators themselves showed dishonesty (for example, disappeared with money and shut down the server). To exclude such possibilities, a decentralized P2Pool pool was invented, the program code of which is open for verification and modification. Each node (node) P2Pool is only one of the elements of the system. Participants should stay on one of the nodes to get the maximum reward. It is not profitable to jump from one node to another.

P2pool has many advantages over the classic pool. First of all, it is anonymity – you do not need to enter your personal data, only valid wallet and email addresses are required to get started. The decentralized structure provides 100% protection against DDoS, and if one of the nodes ‘falls off’, the other node will automatically pick up the results. A fee is distributed among P2Pool miners, which further increases their income. Owners of regular pools often leave commissions to themselves.

Merged mining – mining several cryptocurrencies

Merged mining is a joint mining of several cryptocurrencies at once. Those hash decisions that were not useful in calculating the signature of the Bitcoin block are calculated for other cryptocurrencies configured for joint mining. Among the parallel forks that can be mined are Namecoin, Devcoin, IxCoin, I0Coin. All of them are very complex and have a low exchange rate.

Some pools for Bitcoin include joint mining of one or several forks, usually Namecoin. It gives miners 1-2% extra income. Therefore, when choosing a pool, pay attention to the possibility of using merged mining.

Joint mining is supported by Lightcoin and Dogikoin. Since both cryptocurrencies use the same Scrypt algorithm, there are no technical problems with this.

Those who mine Litecoin get an additional amount of Dogikoins and vice versa.

Multi-coin and multiples

There are pools not only for mining bitcoins, but also for other cryptocurrencies. Of the alternatives, the most popular is Litecoin (Litecoin, LTC). Moreover, specialized algorithm equipment (ASIC) also exists for the Scrypt algorithm.

In its classic form, the pool is a server for connecting devices that perform calculations according to one algorithm – for Bitcoin it is a double SHA256. But over time, multi-coin pools appeared. They are connected to miners who want to mine several cryptocurrencies, switching to mining the most profitable at the moment. The miner performs all the switching manually. To switch to another altcoin, just change the TCP port in the settings of the program for mining.

In fact, the multi-coin pool differs from the usual ones only in that the user does not need to create several accounts for each separate fork. All mined coins are transferred by the pool to one account, from where they are manually or automatically paid to the miner’s wallets.

The next development step was multiples. Their main advantage is that mining automatically switches to mining the currently most profitable cryptocurrency. This takes into account the complexity, price of a coin on exchanges and many other factors. On multipools, as a rule, you can mine altcoins using several common hashing algorithms: SHA256, Scrypt, Scrypt-N, X11-13-15, etc.

I must say that many modern cryptocurrencies – for example, Ethereum and DASH – use graphic processors for graphics cards (GPUs) for mining. There are also forks of Bitcoin that can be mined only on central processors.

But, regardless of the equipment used, the principle remains the same: solo mining is replaced by mining in pools, which significantly reduces the decentralization potential, since the pool actually manages the capacities of the connected miners at its discretion. Including, for example, the pool operator can include in its blocks only the transactions it needs. The strategic goal of decentralized currency enthusiasts should be to improve the technology of distributed production so that anyone can use it – as easy as connecting to one of the usual pools.

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