The rise of digital currencies since 2020 has brought increased attention to cryptocurrency mining and the role of mining pools. As solo mining becomes less feasible for individual miners with lower computational power, mining pools offer a collaborative alternative. This article explains how mining pools operate and how they distribute rewards to participants.
The Background of Mining Pools
In the early days of cryptocurrency, individual miners could successfully mine blocks on their own. However, as more people began mining and the network difficulty increased, it became nearly impossible for solo miners to earn consistent profits. Even the most advanced ASIC miners struggle to compete with large-scale commercial mining operations.
This shift led to the creation of mining pools, which combine the computational power of many individual miners. By working together, miners increase their chances of successfully mining a block and earning rewards, which are then distributed based on each participant's contribution.
The Role of Mining Pools
Mining pools serve two primary purposes. First, they aggregate the hashing power of multiple miners, significantly improving the stability of earnings. Whenever the pool successfully mines a block, rewards are distributed among participants according to their contributed share of the work.
Second, mining pools lower the technical barriers to mining. Miners only need to know how to connect their hardware to the pool; they don’t need in-depth knowledge of block construction or network protocols.
How Mining Pools Operate
Mining pools use specialized protocols to connect hundreds or thousands of miners. Participants configure their mining hardware to connect to the pool’s server via a specific domain and port.
Each miner works on different cryptographic puzzles. When one miner in the pool solves a block, the reward is sent to the pool’s wallet. The pool then assigns new, lower-difficulty tasks to the miners. Each time a miner completes a task, it submits a "share" to the pool for verification.
Once the pool confirms these shares, it records the number of accepted shares per miner. When distributing rewards, the pool uses each miner's share count to calculate their proportional share of the earnings.
Most pools set a minimum payout threshold to account for transaction fees. Miners receive payments only once their balance exceeds this limit. Payout thresholds vary by cryptocurrency.
Why Pool-Reported Hashrate Is Often Lower Than Local Hashrate
It’s common for a mining pool to report a lower hashrate than what your hardware shows locally. One reason is that some mining software, like Claymore, deducts a developer fee—typically by redirecting a portion of your hashrate (e.g., one minute per hour) to the developer.
Additionally, each time the pool assigns a new task to your miner, switching between tasks causes a brief drop in hashrate. Network latency and connection issues can further reduce effective hashrate, especially if rejection or stale rates are high.
Common Profit Distribution Models
PPLNS (Pay Per Last N Shares)
In the PPLNS model, rewards are distributed from a shared pool after a block is successfully mined. Each miner receives a portion of the reward based on the number of shares they contributed recently.
This model is influenced by the pool’s "luck," which is the ratio of expected to actual blocks found. A luck value of 200% means the pool found half as many blocks as expected in a given period. While luck fluctuates short-term, it tends to average 100% over time.
Miners who recently joined a PPLNS pool may earn less initially than established contributors, but earnings stabilize over the long run.
PPS (Pay Per Share)
The PPS model offers a fixed, daily payout based on your verified hashrate contributions. Your earnings depend primarily on your consistent computational power, and payments are often made in real-time.
Unlike PPLNS, PPS guarantees earnings even if the pool has an unlucky day and finds few or no blocks. This reduces risk for miners but transfers volatility to the pool operator, who must cover payouts during dry spells.
PPS+ (Pay Per Share Plus)
PPS+ is a hybrid model that combines PPS with transaction fee distribution. Miners receive a fixed base reward for their shares plus a share of the transaction fees from mined blocks.
This approach offers the stability of PPS while also allowing miners to benefit from fee revenue. PPS+ is often considered the best of both worlds: consistent earnings and additional fee income.
👉 Compare real-time mining pool statistics
Frequently Asked Questions
What is a mining pool?
A mining pool is a collective of cryptocurrency miners who combine their computational resources to improve their chances of mining blocks and earning rewards. Rewards are distributed based on each miner's contribution.
Which payout model is best for beginners?
PPS or PPS+ models are often recommended for beginners due to their predictable earnings. PPLNS may be better for long-term miners who can tolerate short-term volatility.
Do mining pools charge fees?
Yes, most pools charge a small fee (usually 1-3%) to cover operational costs. These fees are deducted from your earnings before distribution.
Can I switch between mining pools?
Yes, you can change pools at any time by updating your miner’s configuration. Note that some models like PPLNS may require a brief period to accumulate shares before full earnings kick in.
What is pool "luck"?
Luck measures how many blocks a pool actually finds compared to how many it was expected to find based on its hashrate. A value of 100% is average.
How often do mining pools pay out?
Payout frequency varies by pool. Some pay daily, while others use a threshold-based system where you’re paid once your balance reaches a minimum amount.
Mining pools have become essential for individual miners seeking consistent returns in today’s competitive landscape. By understanding how they work and the different reward models, you can choose the pool that best fits your goals and hardware setup.