While bitcoin (BTC) mining is becoming more and more popular every year, the competition between these miners rises as well. Mining a block and receiving bitcoin as a reward therefore becomes harder as more miners enter the market. But there is an option to become more profitable: mining pools.
Nowadays, bitcoin mining is all about competition. The more hash keys you are able to spit out with your ASIC miner, the higher the chance you guess the target hash. This means that the one that has the best mining rig and thus the most money, has the highest chance to earn bitcoin. When you are a smaller miner and run a mining operation from home it can be very hard to compete with these big players.
It might even be so that you put in a lot of electricity without seeing any results as the biggest players in the market manage to guess the right hash keys before you. This way your mining operation becomes unprofitable very quickly. However, there is a way to increase your profits in case you run a small or medium-sized mining operation.
To increase your profits you can start working together with other miners around the world. By pooling the resources of your miners with other miners you can create a virtual mining farm. In other words, you join a big organization with many other miners that work together and eventually split the rewards.
To get a better idea of how this works we will give a simple example of two miners joining forces. Miner A lives in Germany and has 5 mining rigs working for him. Miner B lives in the United States and also has 5 miners up and running. Let’s say these 10 miners each have the same hashing power. This means that miner A and miner B deliver the same hash rates.
Eventually one of the two miners will guess the right hash key. But as they signed an agreement with each other, they will share the rewards based on the hashing power they deliver to their pool. In this case they split the rewards as they each deliver the same amount of hashing power. So, by joining forces they increase their chances of guessing the right hash key. But they do have to split the rewards as soon as one of them guesses it.
The distribution of rewards
There are many different ways to distribute mining rewards within a mining pool. Here are two ways this is being done today:
- Proportional: A miner earns shares by spending resources to mine bitcoin. Depending on the hash power a miner can bring forth, the amount of shares is calculated. As soon as the pool finds a block, the rewards get distributed based on the amount of shares someone has.
- Slush’s system: Named after the mining pool ‘Slush’. This way a bitcoin miner also earns shares but the older shares are worth less. As soon as a block is mined, a new round starts and the rewards from the previous round are distributed.
By working together with other bitcoin miners by joining a mining pool, you will increase your chances of earning some rewards for your efforts and spent resources. In other words, you will be able to stand a chance against the big players in the mining world. Joining forces is therefore not a bad idea at all!