Mining Pools And How They Work

The basic way that one goes about obtaining cryptocurrency is called mining. This is a process for individuals who do not want to simply buy Bitcoin or other tokens from an exchange. In recent years, mining has become an expensive proposition that requires complex computer resources. Mining is simply beyond the means of many individuals. A mining pool helps make mining accessible to those who would not otherwise have the opportunity to generate their own reserves of cryptocurrency.

What Are Mining Pools?

A mining pool is a group of individuals who share mining equipment in order to mine cryptocurrency. It is possible for individuals to do this among themselves privately, but it is far more common for individuals to use a company like Genesis Mining. The company provides and maintains all of the mining equipment. Each individual then purchases a share of a mining contract. All those who purchase a share are entitled to share in the rewards.

Bitcoin Mining pools can be a much more affordable alternative than trying to mine coins on one’s own. Cryptocurrencies are designed in such a way that mining becomes progressively harder. As the difficulty increases, so does the resources that are needed to mine tokens. This progressive increase of costs means that many solo miners soon find themselves priced out of the game. A mining pool eliminates this worry by investing in the best hardware and operating it on behalf of those who buy a contract.

Single Pool Vs. Multi-Pool Mining

Single pool mining is that which focuses on mining one specific cryptocurrency. For example, individuals might choose to exclusively mine Bitcoin or Ethereum. This can certainly be a profitable way to obtain tokens of a single type. Many mining collectives today, however, are promoting a multi-pool model which allows those who participate to take advantage of profitable shifts in the cryptocurrency market.

Multi-pool mining allows miners to select coins which offer the most upside at the present time. The company which operates the pool typically determines which coin offers the most value. To make this determination the collective will consider things such as difficulty and exchange rates. The company will also take into consideration hash rates and the time required to generate a block.

The advantage of this type of mining pool should be apparent. It should be noted, however, that risk is involved. There is always the chance that the value of a token will decrease before the rewards of the mining operation can be achieved.

How a Mining Pool Rewards Users

Those who choose to participate in a mining pool are rewarded according to a couple of different models. To receive a reward for mining means that a block has been successfully added to the blockchain. The great thing about a mining pool is that you don’t really need to understand how all of this works. You simply purchase a contract and collect the rewards based on the pool’s distribution policy.

Pay-Per-Share, also known as PPS, is a common method of allocating pool rewards. In this type of system, rewards are distributed based on the share of the cryptographic problem that has been solved. Pay-Per-Share usually offers an instant payout to miners. A balance is maintained in the mining pool to make these instant payouts to miners.

Full Pay-Per-Share, or FPPS, rewards miners for solving a block, but it also adds in rewards for transaction fees. These fees are created when individuals use cryptocurrency to make transactions. Any fees that have been accumulated will be added to blocks. When the block is solved, the fees get distributed according to the PPS model.

Again, if you are not familiar with certain terms such as “mining a block” or “hash” there are resources available on Cryptoswede to help you understand what these terms mean. You do not need to understand all of them completely to participate in a mining pool.

Pros of Mining Pools

  • Provide a more stable and reliable source of digital tokens
  • Much more cost-effective than trying to mine on one’s own
  • The possibility of huge rewards

Cons of Mining Pools

  • Interruptions can occur when equipment goes down
  • Must share rewards instead of keeping all of them
  • Some reward structures carry the risk of losing money

Mining pools are not for everyone. Those who choose to participate in them should understand that there is a risk involved. It is possible that a mining contract will cost more than the coins it generates are worth. On the other hand, there is a possibility that an individual could generate a large number of coins that will go up in value. This would make the mining pool a profitable investment.

Those who want to experience the thrill of mining coins without the expense of purchasing equipment will find pools to be attractive. They can make an individual feel as though they are involved with cryptocurrency at the most basic level.

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*** Here at CryptoSwede you will find information on Crypto Mining the different cryptocurrencies as well as the best cryptocurrency exchanges. You can trade or you can set up trading bots instead and then store the crypto on crypto wallets. Later, spend them using crypto debit cards!***

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