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What is a Mining Pool, What is its Role and How Does it Work?

What is a Mining Pool?

It is necessary to understand the fundamentals of how the blockchain operates in order to comprehend what a mining pool is. It is worth noting that, unlike our existing centralised system, where transactions are confirmed and certified by a single intermediary (most typically your financial institution), transactions on the blockchain are checked and validated in a decentralised manner (that is, by everyone on the network).

Mining equipment is made available to the network by ordinary people, as well as professionals, who act as miners. This hardware has been designed to maximise the amount of computational power available for transaction validation. In accordance with the features of the coin being mined, these mining rigs employ either graphics cards (GPUs) or processors (CPUs).

Miners are compensated with cryptocurrency shards for each block that is added to the blockchain in exchange for the computing power they provide to the network.

But, in the end, What is the Role of Mining Pools in all of this?

To be honest, it’s quite straightforward to comprehend. Whereas the difficulty present on the network was low enough a few years ago to allow individual mining with limited computer power, it is now impossible to mine alone with even modest gear. As a result, the power required to “construct a block” grows in proportion to the size of the network and the number of individuals participating in the network.

Mining pools, as a result, enable the pooling of the processing resources of several miners in order to speed up the resolution of the mathematical riddles required for the proper operation of the Proof of Work algorithm.

Because of this particularity, mining pools are required for the effective operation of the blockchain and are therefore mandatory.

A Quick History

Let us imagine that we are in the year 2011, it is 9:00 p.m., and you have just received an email from a friend of yours explaining how to mine Bitcoin (BTC), stating that it is “the currency of the future.” Curiosity getting the better of you, you follow his instructions and begin mining with your laptop’s tiny CPU. You are awarded with 50 BTC for your participation in the production of a block a few minutes after you first started.

Although it appears to be lunar to us now, it was the norm for everyone at the time. Rapidly, an industrialization of the process began, and the number of more significant investments increased: mining rigs, mining farms, GPU mining, and so on. The machine was already up and running. As a result of the increasing power of GPUs, miners using CPUs began to have increasing difficulties locating blocks as a means of compensating.

This condition paved the way for the establishment of the world’s first Bitcoin mining pool, known as Slushpool, in 2009. Since then, the entire architecture of the mining industry has undergone significant transformation, with the creation of new pools and technological advancements in mining methods accelerating at an unprecedented rate.

Because to the introduction of more efficient hardware (particularly ASICs) and the professionalisation of the mining environment, it is now required to participate in a mining pool in order to have a chance of dropping a block.

What Goes on Behind the Scenes at a Mining Pool?

After seeing the theory, how does it translate into practice? What is the interaction between a miner and his pool? What procedures are followed when doing transactions? Who is the winner and what is the prize? Once again, let’s be imaginative. You have a mining rig and would like to begin mining on a pool of computers. Take, for example, Cruxpool, a French mining pool, as an example.

You connect your hardware and mining software, which then connects to the pool server through a protocol known as STRATUM (Structured Transactions and Transfers). Once the miner has been identified and assigned an identification, the pool adjusts the mining difficulty to accommodate users so that they can locate shares granted to his computing power and, as a result, participate in the generation of blocks and get a reward.

In this way, the exchange of information between users and pools continues, with the pool providing “jobs” (the mathematical puzzles discussed above) that the miner must process and solve in order to earn bitcoin. This procedure is referred to as share validation.

Management of Shares and Remuneration

The validation of shares, as well as their management, change depending on the protocols that have been adopted in the pool in consideration. Continuing our last example, we will now look at the operation of Cruxpool, a PPS (Pay-Per-Share) mining pool that accepts bitcoin payments. There are three possible outcomes. If a share is deemed invalid, it will not be compensated.

If the share is genuine, but does not allow participation in the construction of the current block, it is nonetheless registered in order to compensate the miner for his or her efforts. When a share is valid and contains the necessary solution required for the formation of a block, the miner receives a reward, and the share is also sent to a blockchain node for inclusion.

Mining Pools are a Conduit between Miners and the Blockchain!

As a result, you have grasped the concept that mining pools serve as a conduit between miners and the blockchain. The information that is passed between all of the participants must be fluid, precise, and easy to understand. The pool, on the other hand, must constantly guarantee that the jobs it sends to miners are compliant with the blockchain nodes’ requirements.

As a result, he must thoroughly research the information included in the current block, as well as the transactions that will be included in it. Finally, as previously stated, it sends these jobs to the miners through the use of the STRATUM protocol. Once the job is completed, the miners transfer their shares to the pool, which is in charge of gathering the information pertaining to the transactions and distributing it to the rest of the network.

If everything goes according to plan and the data is correct, a new block is approved. Finally, as mentioned above, comes the long-awaited moment of rewards: miners are paid according to the shares submitted to the pool. Keep in mind that everyone has a different redistribution policy and this step may vary from pool to pool (PPS, PPLNS, and so on)!