Gareth Johnson
Gareth Johnson
Updated on August 26, 2021

Bitcoin mining has become more and more popular as the price of Bitcoin increased substantially over the years. Bitcoin miners race each other to validate the next block of transactions on the Bitcoin blockchain first, so they can get the block rewards as well as the associated transaction fees.

Many hands make light work certainly applies to Bitcoin mining, as it could take a solo miner a long time to mine a Bitcoin block successfully if they don’t have a mining farm of their own. Joining a mining pool, on the other hand, allows miners to combine the computing power of their mining equipment, helping the pool mine faster and more successfully.

We prepared a guide to explain how mining pools work and which features make for a good mining pool. If you are interested in mining Bitcoin and earning mining rewards, read on to find out how to join a mining pool.

What Is Bitcoin Mining?

Bitcoin mining is a crucial aspect of the Bitcoin ecosystem. The security and continued existence of the Bitcoin blockchain owe a great deal to miners who add and validate BTC transactions.

Bitcoin hidden behind gold mountain rocks with pickaxe

As you may already know, the Bitcoin blockchain is a public and immutable ledger. Every Bitcoin transaction gets recorded on the ledger that is shared on Bitcoin’s peer-to-peer network. 

Every user on the Bitcoin network can, at least in theory, validate transactions. However, a cryptographic proof system known as proof-of-work requires the users to perform a successful mining operation before allowing them to add a new block to the Bitcoin blockchain. The first peer who completes the proof-of-work operation gets to update the blockchain and earns mining rewards in exchange for their effort. Mining rewards function as an incentive to encourage people to continue mining and keep the blockchain in good condition.

Satoshi Nakamoto, the pseudonymous inventor behind the famous digital currency, came up with this system as a way of preventing people from adding false transactions to the blockchain, guaranteeing the reliability of the Bitcoin blockchain.

How Does Bitcoin Mining Work?

Bitcoin mining is based on a cryptographic protocol known as proof-of-work. The protocol uses an algorithm to assign a target value, known as a block hash, to each new block that will be validated on the blockchain. Bitcoin miners have to come up with the right hash in order to fill the block with transactions and earn mining rewards. 

Hashing sounds complicated but it’s a simple concept. When you take a piece of data, for example, this paragraph, and put it through Bitcoin’s hashing algorithm, it gives you a unique value. If you change a single character, however, the resulting hash ends up being completely different. Now, imagine that I added a random number between zero and nine at the very beginning of the paragraph, and received a different hash. All you have to do in order to come up with this hash value is to try the numbers one by one and run the paragraph through the hashing algorithm to see if it matches with mine. Once you find the right number, it is very easy to verify your solution, but the work itself takes some time.

This is exactly how Bitcoin operation works, though, of course, the difficulty is much higher with Bitcoin. Instead of hashing numbers between zero and nine, a miner has to hash millions of numbers to find the right value, depending on the total computing power of the Bitcoin network. The hash difficulty adjusts every two weeks on the basis of how much computing power the network has.

Why Do People Join Mining Pools?

Bitcoin mining is essentially a race. Every miner tries to find the right hash value before the others. However, as Bitcoin mining becomes more difficult, the number of guesses that computers need to make in a limited amount of time increases exponentially.

Woman using computer with mining rig on background

Bitcoin mining difficulty and mining power are measured in hashrates. As more miners with hashing power join the race, the Bitcoin network hash rate increases, and so does the difficulty of mining. Even after China’s 2021 crackdown on Bitcoin mining, the network’s difficulty remained at trillions of hashes per second. Even the hashrate of an industry standard ASIC miner (Application-Specific Integrated Circuit) pales against such odds. Overall, for most miners, joining a mining pool is their only shot at successfully mining a Bitcoin block.

In a mining pool, miners collaborate in order to eliminate the wrong numbers as quickly as possible, come up with the right hash, and share the rewards when they mine a block successfully.

What Is a Cryptocurrency Mining Pool?

A cryptocurrency mining pool is a network that combines the computational power of multiple mining rigs in order to discover a hash value as quickly as possible. The first cryptocurrency mining pool, the Bitcoin Pooled Mining Server, was founded back in 2010 to allow Bitcoin miners to cooperate. It is still active, though today it’s called Slush Pool.

Mining pools quickly grew popular as the profitability of solo mining efforts decreased. There are several active cryptocurrency mining pools, where collaborative mining processes for Bitcoin and other altcoins like Litecoin (LTC) and Ethereum (ETH) are run. 

Up until the Chinese government’s decision to ban cryptocurrency mining, most mining pools operated out of China, especially in regions where electricity is cheap. While some mining pools had to shut down operations, popular mining pools such as P2Pool, Poolin, Antpool,  and F2Pool continue to offer services. The ban also caused a surge in sales of second-hand mining hardware after several operators had to shut down their mining farms, with ASIC miner producers like Bitmain suspending sales.

How Do Mining Pools Work?

Mining pools manage and organize the work of miners and oversee the allocation of rewards. Each pool uses its own system to divide the work and the rewards among pool members. The goal of a mining pool is to make the most out of the mining process so that the productivity of the pool is maximized.

Each Bitcoin mining pool server has operators who assign blocks and ranges to miners that they should work on. Pool operators are also responsible for giving pool members payouts for their efforts.

The different types of mining pools mostly differentiate according to their reward schemes. There are several methods used to calculate how rewards will be shared among pool members, though only a couple of them are used by the largest and most successful pools.

Hand holding bitcoin with mining rig in mining farm on background

It is important for miners to learn about how rewards are calculated and allocated in a mining pool before they join it. Some reward schemes require miners to collect a certain amount in their accounts before allowing them to take their payouts. If the threshold is high, a miner has to work a long time without getting any payment. Your circumstances often define which payout system and which mining pool, in general, will best benefit your efforts.

How Do Mining Pools Share Rewards?

Usually, miners receive rewards depending on how much they contributed to a successful operation, though the calculation method depends on the mining pool. Since each miner has to do their own share of work to complete a mining operation, the rewards are calculated on the basis of their “shares.” 

There are three main rewards systems used by popular mining pools. These are Pay-Per-Share (PPS), Pay-Per-Last-N-Shares (PPLNS), and Full-Pay-Per-Share (FPPS). 

Pay-Per-Last-N-Shares (PPLNS)

Pay-Per-Last-N-Shares is a proportional payout method. When the pool successfully mines a block, miners share the block reward based on their shares for all the previously (unsuccessfully) mined blocks in a given time period, known as a round. Miner shares are proportional to the work a miner accomplished in each round. PPLNS rewards miners who continuously mine in the same pool. Slush Pool and Antpool use PPLNS to calculate rewards.

Pay-Per-Share (PPS)

PPS is another popular reward distribution method. Mining pools that use the PPS method pay miners for their shares even if the miners in that pool don’t manage to mine a block. In other words, PPS guarantees payouts to pool members as long as they mine, regardless of their success. Every pool member can make money through the pool without having to depend on luck. Of course, that means mining pools shoulder the risk and hence, have higher fees compared to other mining pools. ViaBTC, F2Pool, and BTCC are some of the mining pools that use the PPS method.

Full Pay-Per-Share (FPPS)

Full Pay-Per-Share is pretty much the same method as PPS. The nice thing about FPPS is that miners also share the transaction fees that are attached to transactions, as well as the block rewards. Poolin uses the FPPS method to distribute payouts.

How to Choose a Bitcoin Mining Pool

You should do your research before choosing a mining pool to join. You can mine Bitcoin in most cryptocurrency mining pools, but you need to be careful about their requirements and pay attention to their payout schemes. We listed some important factors that determine which mining pool you might wish to join.

Pool Requirements

Pool requirements are probably the first thing you should check before trying to join a mining pool. Most mining pools list basic software and hardware requirements on their websites. Keep in mind that popular mining pools require that you use industry-standard mining hardware, most likely an ASIC. It might be hard to find a reputable mining pool that accepts GPU miners, so you are better off investing in some second-hand mining rig if you decide to take the jump. Mining pools might also have requirements concerning minimum network speed or specific software programs.

Pool Reputation and Stability

Pool reputation is everything when it comes to Bitcoin mining pools. Pool operators control mining pools, so they hold all the power when it comes to handing payouts to miners.  A trustworthy pool is transparent regarding how the pool operates and how they manage rewards. It is important that a mining pool is stable and secure enough to withstand hackers and other malicious attacks. Picking a mining pool with a good reputation in the community is a must if you are serious about Bitcoin mining.

Task Assignment Schemes

A good mining pool divides the tasks among pool members according to their computing powers but assigns tasks to all miners regardless of their hashrate. If a miner is not assigned tasks due to low computing power, they don’t get shares and they can’t benefit from rewards. This is an important principle even if you have multiple high-end ASICs at hand since mining devices can improve significantly in a couple of years, and leave your current equipment in the dust. 

Bitcoin mining rewards concept using corkboard

Reward Schemes 

This is probably one of the most important things to look for in a mining pool, after reputation and requirements. Popular mining pools often use either PPS, FPPS, or PPLNS. PPS and FPPS provide stable payouts to miners as long as they continue to mine, so they are considered a safe bet. With PPLNS, you get paid once a block is successfully mined but since your efforts for previous failed blocks are also valued, payouts could be higher in the long term. Make sure you check how frequently miners receive payouts and how much they need to mine before they are over the payout threshold.

Pool Fees

Pool fees are an important aspect of mining pools. You should consider how much you expect to earn from a pool, then decide how much you can pay in fees, and see if it all comes together. There are some pools that don’t charge any fees like AntPool, though the pool keeps the transaction fees to itself. There are also pools that charge miners monthly and annually, and they usually have limited time offers for new pool members.

Ethics

This may sound strange at first but ethics is also a factor when it comes to picking a Bitcoin mining pool. As you may know, Bitcoin is designed as a decentralized payment system without a governing authority. In theory, miners and other stakeholders make the important decisions about what happens to Bitcoin. However, as more solo miners join mining pools, governance power has begun to concentrate in the hands of the few mining pools and pool operators that run them. That gives the pools a certain power over the network. For example, ASIC miner producer company Bitmain also owns the Antpool, ViaBTC, and BTC.com mining pools and have infamously opposed the implementation of the SegWit protocol that decreases Bitcoin transactions fees. The controversy caused a Bitcoin hard fork, resulting in the creation of Bitcoin Cash (BCH). Joining a popular pool has its advantages for Bitcoin miners, but could have unpredictable long term effects that’ll show in the future.

How to Join a Mining Pool

Once you decide which mining pool you want to join and get the necessary mining rig required by the mining pool, all you need to do is to sign up for the mining pool service online. Once you create an account, connect your mining rig to a mining pool server by typing in the stratum protocol address. You should also list a payout address where you’ll receive your rewards. Depending on the mining pool, you might be able to choose a payout threshold.

A Few Words Before You Go…

Mining pools combine the hashing power of multiple devices in order to claim block rewards, leaving solo miners in the dust. Joining a mining pool is the most profitable way of mining Bitcoin at the present. However, even if joining a mining pool is more profitable than solo mining, it requires a sizable investment. You need an ASIC miner (or more) and enough money to pay your electricity bill at the end of each month, as well as any pool fees depending on the mining pool you join. It is a good idea to calculate the cost of mining before jumping in the pool with both feet. Some mining pools have mining profitability calculators you can use to see if joining a mining pool is a profitable option for you.