All pool reward systems depend on the concept of “share.” A hash shows that you have participated to find an authentic block. When the pool finds an authoritative block, the amount of pool reward you get depends on the shares you present. Miners who connect to bitcoin mining can receive pool rewards.
The first miner to solve the block equation receives the block reward, which is now 6.25 points in Bitcoin. But today, with the expansion of Bitcoin and other digital currencies, direct mining is not possible for more than 90% of miners. If you buy a Bitcoin mining server or machine now and connect directly to the network, you probably won’t be able to win the block reward for thousands of years. Many competitors have invested hundreds of millions of dollars in this sector.
For this reason, most miners connect to cryptocurrency cloud mining services to mine bitcoins and other cryptocurrencies.
Why is pool reward considered in crypto mining?
Cloud mining is a system to mine a cryptocurrency, such as bitcoin. They rent the computing devices of a mining pool without the necessity to install and run the relevant hardware and software. A mining pool is a virtual place where miners share their processing.
They all work together to mine a block. Ultimately, everyone benefits as much as their processing power. In other words, the miners transfer their processing power to the mining pool, and the mining pool works on behalf of the other miners to receive the block reward. Therefore, subscribers of cryptocurrency cloud mining services receive a pool reward. The main advantage of the mining pool (please check the Advantages and disadvantages of solo mining VS pool mining) is that it allows miners to earn a permanent income.
Decentralized cryptocurrencies use the blockchain instead of trusting a third party such as a bank to verify transactions and maintain network security. In this blockchain, people needed to participate as validators and builders of transaction blocks.
So in mining-based networks such as Bitcoin, it is the miners’ job to secure the network with the power of their computer hardware. And in stake-based networks such as Thezos, individuals participate in blockchain and security by allocating their currencies to the network.
To encourage people to participate in the mining and staking process, a pool reward is considered for them, which is called a “block reward.” If you participate in a mining pool, you will receive a pool reward.
In the following, we examine the concept of block reward in the two mechanisms of proof of work and proof of stake. The pool reward follows the same conditions.
What does proof of work mean in a network of cryptocurrency production?
To prevent cyber-attacks, proof of work is a security mechanism in the cryptocurrency network. In this mechanism, anyone who wants to work as a cloud miner center in the network and earn money must allocate the processing power of their hardware to the network.
These miners use their processing power to solve a mathematical equation. Thus, if someone wants to attack the blockchain, he has to have more processing power than other miners. Of course, given the large number of miners, this will be very difficult. So there is no economic justification for hackers to attack the network.
What is the block reward in the bitcoin network?
The block reward in the bitcoin network or pool reward in the mining pool is the number of bitcoins that are generated every ten minutes with each block created and given to the miner. Currently, the pool reward per block is 6.25 bitcoin units. This bonus halved every four years after every 210,000 blocks are mined, during an event called “Halving.”
In a bitcoin network, very high computing power is required to validate and add blocks to the chain. The miner who prepares the computing power of his hardware to the network must pay for this computing power. Therefore, these costs must cover to motivate miners. The blockchain network rewards miners to cover these costs. Also, the companies that offer cryptocurrency cloud mining services, present pool rewards for covering their participants.
According to the Bitcoin protocol, the first successful miner to build a valid block to connect to the blockchain will reward. The pool reward is in exchange for the considerable cost that Miner spends on block mining. Therefore, in addition to the transaction fee, which is relatively low, the miner receives new bitcoins in the form of pool rewards.
What are the types of pool rewards?
The method of paying pool rewards by mining pools can be different. Large mining pools usually use one of the following methods to pay their users.
- Payment per share -PPS
- Proportional payment
- Score-based payment
- Pay per N last share – PPLNS
You will always be paid in the PPS method. In the PPLNS method, if your system participates in the hash power and mining of a block, you will earn a lot.
How to pay per share or PPS?
In this method of paying the pool rewards, in proportion to the amount of processing power that you provide to the network, you will give shares and the same amount of interest will pay. And in the “Pay per Share” method, regardless of the success of the block mining and regardless of the income of the pool, you will receive a profit.
In the method of pay per share, it is the pool that pays the share of pool rewards from its inventory. The newer version of this method of paying interest is called PPS +. The function of PPS + is the same as PPS, except that the transaction fee for each block is also calculated by the pool.
Pay per share
What is the Proportional Payment of the Pool rewards?
In Proportional Payment, you also take pool rewards in proportion to the processing power that a miner gives to the pool. In the Proportional method, immediately after mining a block, your pool reward will credit to your wallet account in proportion to your share of total processing power.
Remember that in Proportional Payment, as the number of miners in the pool increases, the pool reward received decreases; On the other hand, the chances of finding a block and allocating rewards will higher.
What about Score-Based Payment?
Score-based payment is a method designed to prevent the pool from constantly changing; In other words, the mining pool gives you points for your activity. If you have more points in the pool, you will receive more Pool rewards. In the Score -based payment method, after mining the block, the rewards credited to the account of the miners.
What is Pay per Last N Share?
In this pool reward payment method, miners first receive shares that are calculated within a predetermined framework. Unlike other pool reward payment methods, shares outside the profit range are not awarded. In the payment method for the last N shares, N represents the last shares received until the block resolved.
For example, if we consider N as ten billion shares, after creating a block, only the last ten billion shares that have joined the mining process will reward. Remember that the N digit is not known, but the method of calculating it has a constant coefficient that is related to the difficulty of mining the pool.
This method of payment also called “pay for chance.” This is because if implemented correctly, miners will able to calculate the exact time of joining the pool.
What are the advantages of joining a Mining Pool?
Some of the benefits of joining cryptocurrency cloud mining service include:
- As we explained earlier, joining a mining pool increases the opportunities of gaining the answer to the equations and thus receiving the pool reward. When you mine bitcoins alone, you have to compete with a large number of mining giants to solve block equations, which drastically reduces your chances of getting rewarded.
- Another advantage that joining a mining pool gives you is income stability. When you mine bitcoin in a mining pool, you will be a very strong miner. So you can estimate your profit. As a result, your income will credit to your account at a fixed rate.
- Reducing the cost of the best crypto mining is another benefit of joining a mining pool. If you want to connect several devices individually directly to the blockchain network and solve its equations, you will incur huge costs. Therefore, the pool rewards cannot cover your expenses.
What are the disadvantages of joining a Mining Pool?
Despite the advantages of joining a mining pool, membership in this pool also has disadvantages, which include:
- Increasing the network focus. As more people move toward using mining pools, the focus on the network increases. It becomes more difficult to earn pool reward
In the case of bitcoin, due to the large size of the mining pools, it seems it is not possible to concentrate the network in the real world. You need to pay attention that for creating connections with smaller currencies, increasing the penetration of the mining pools will be dangerous.
- The non-clarity of the company which offers the cryptocurrency cloud mining service is another disadvantage. The mining pool may show you the wrong numbers and manipulate your income. In this case, your chances of finding this manipulation will be very low. Therefore, before joining a mining pool, make sure that it works properly and clearly.
- The technical problems of swimming pools are another problem that you will face when joining them. If you connect to a pool, your income from the pool reward will also depend on the stability of the pool connections and equipment.
In other words, if the pool is out of reach due to technical problems, your income will cut off and you will have to wait for the pool to fix the problem, and this can change your profit margin.
How to select the best mining pool?
To find a suitable cryptocurrency cloud mining service, you must consider several factors, some of which we will mention below.
- Check your infrastructure; Remember that some pools only allow connection to certain miners; So before choosing a pool, make sure that your equipment is compatible with the accepted pool equipment.
For example, Slushpool prevents the operation of devices that mine bitcoins using graphics cards GPUs like Claymore miner before start mining with this, you need to know What is Claymore miner, and how does it work?, or CPUs. You can only connect by ASIC devices. Some other pools do not allow the user to connect to any type of Internet. They set the minimum level for connecting to them.
- Know how to pay for pools: choosing the right payment method will have a huge impact on your income. Therefore, before choosing a mining pool, check the payment method.
- Some pools pay pool rewards to the miners’ accounts at certain intervals.
- And some of them have payment restrictions.
- Then some of them have a minimum level of withdrawal.
- Choose a clear pool: As discussed in the sections above, some mining pools don’t have clarity in their activities. So miners are not aware of the details of the activities that take place in the pool. It causes users to not notice if the statistics violated or manipulated. Therefore, sometimes cause irreparable damage to them without getting pool reward.
- Consider the fee for each pool: Each pool has a certain rate that it receives as a fee from the miners. Be sure to find out this amount before connecting to the pool.
- Some pools place restrictions on miners. For example as below:
- Some pools are private, and not every miner can connect to them.
- Several pools have also banned users from different countries. So, before choosing a pool, make sure that there are no problems related to sanctions.
- Some of them place other limitations that you should consider such as:
- First limitations on hash rates,
- Second limitations on infrastructure,
- Third limitations on payments,
- And limitations on payment intervals.
These restrictions affect the reduction of pool rewards.