- The ever-rising expense of mining has forced many miners to shut down private operations and enter a mining pool.
- Some popular mining pools are F2Pool, Slush Pool, and AntPool among others.
Mining is an essential component of Proof of Work (PoW) based blockchains which helps in the validation of transactions and turn to secure the whole network. While you may buy or exchange other tokens for Bitcoin, mining is the only process through which new coins enter into circulation.
Miners need to guess the correct hash which is less than or equal to the target hash. This target hash is a 64-digit hexadecimal number, which amounts to the number of guesses to trillions. If a person rolls a dice with 16 faces 64 times, then he will come up with one such hash and do it a trillion times to come up with the solution.
People depend on computers for such operations, and during the time of launch, personal computers were enough. However, as the popularity soared high and networks became more congested, the hash rate kept on increasing, demanding more powerful hardware and computational power. Presently. miners depend on GPU or Application-Specific Integrated Circuits (ASIC) to continue mining.
Racing on a Wet Field
Due to the high competition, there are very low chances that a person may guess the correct hash and earn block rewards. All the resources, time, and energy they spent are wasted. In Bitcoin, a new block is created every 10 minutes and new coins are minted. However, this is only with the latest technology and an individual may take several years to mine just a single bitcoin.
In addition to steeping electricity and graphics card costs, is added the notion of Bitcoin halving. This is inbuilt in the protocol which halves the block reward every four years. Early miners earned 50 BTC per block which went on halving to 25, 12.5, and finally rests at 6.25 BTC now. The next halving, due in 2024, will reduce it to even lower at 3.125 BTC. Thus, individual miners have more competition, high costs, less chance, and lower rewards.
This has forced several individuals to combine their computational efforts and make what came to be called a mining pool. This mining pool includes several nodes that work together, increasing their total hash rate and having more chances to earn block rewards. The rewards obtained are distributed among all the participants in ratio to their contribution to the pool. Pool members can enjoy a steady rate of awards.
In individual mining, the node is solely responsible for guessing the correct nonce. Suppose the correct nonce lies somewhere between 0 and 100,000. The person will start from 0 and gradually move up, till he reaches the correct and hits the block. However, this will become increasingly time-consuming as the network difficulty is increased, which is maintained by the network to ensure a constant pace of discovering blocks.
In a pool, this range of nonce (0 – 100,000), is split into parts and given to the many individual nodes. Thus all will be responsible for guessing the different parts of the nonce range, increasing their speed, and improving their chances to earn block reward.
Pursuing solo mining prevents you from paying any pool fees and earning the full reward of 6.25 BTC, if successful. Solo miners are also prone to any pool outages or timeouts giving them more time. While joining a pool, miners have to trust the pool operator and have no say in choosing the transactions. They cannot participate in the governance or upgrade-related decisions of the protocol.
Final Thoughts
A new miner may face confusion while choosing the best mining strategy for them. To reduce such confusion, the factors of personal technical expertise, network hash rate, energy consumption rate, and the upfront investment needed should be well considered and discussed before settling on any particular.
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