Mining Pools

Landscape

Beginner

By Matt Hussey

Learn

Jan 23, 2019

Mining pools are groups of independent miners who agree to combine their resources in order to increase their chances of cracking the puzzle at the heart of blockchains. These mining pools have become so successful they now have the ability to dictate the direction of the blockchains they mine.

What you will learn

What you will learn

What mining pools are, how they came about, how they work and how they utilise their power to steer a network.

In the early days of bitcoin, mining was a one man job. It was easy enough to solve the proof-of-work puzzles at the heart of blockchains that they could run a mining rig from their bedrooms.

But as Bitcoin's popularity increased, so did the difficulty of the puzzle at the heart of the network, meaning individuals weren't likely to ever reap the rewards. That's where mining pools come in. Miners began working together to increase their chances of a pay-day.

Below we dive into these pools in greater detail.

What are mining pools?

A mining pool contains thousands of interdependent miners running the same mining software, known as a “client.” Using the same clients ensures that their interests are all aligned. Everybody receives a “share” of the overall block rewards generated, provided they can prove they have solved blocks.

There are two broad types of mining pool worth noting:

  • Cloud based pools Miners in these pools mine independently, and connect to the pool through the cloud.

  • Mining farms - These miners are like data centers, whereby hundreds or even thousands of miners are sat together working in the same pool.

Find out more about bitcoin mining here.

What are the most well-known pools?

Slushpool is the oldest mining pool, and was established in 2010. It represents 11.4 percent of the overall bitcoin hashrate, and is the fourth largest.

AntPool is the biggest in the world, and accounts for a quarter of global hashpower. It’s run by Bitmain, the Chinese manufacturer known also for manufacturing the Antminer series of ASIC mining chips. Because there are more miners running AntPool’s software, they receive comparatively smaller payouts.

BTC.com is a little different. While Antpool and Slushpool have servers all around the globe, BTC.com only has servers in China and the EU. Yet it remains the second most popular pool. Its popularity comes from its unique “full pay per share” system, which adds a portion of total transaction fees to users’ rewards.

But these mining pools have brought a number of challenges.

What are the problems with mining pools?

Energy Consumption

Mining drains a lot of energy, and when miners amass, they drain more. The total amount of energy bitcoin miners consume, for instance, places it between Chile and the Czech Republic in terms of electricity used per year.

To solve this, many Chinese mining pools situate themselves near sources of renewable energy, such as hydroelectric plants by dams and streams. They then exploit the surplus energy that the plants generate. This is particularly prevalent in Sichuan, the “capital of bitcoin mining.” Since this energy often goes to waste anyway, some argue that this is actually more environmentally friendly.

Manufacturer 12SHIPS, meanwhile, has designed a mining rig with powerful cooling technology. Cool machines consume far less electricity. On the flipside, hot machines can be more versatile. The Qarnot QC-1 rig, for instance, also functions as a central heating system.

Harmful concentration

Observers say mining pools exert too much-centralized power on cryptocurrency networks, which are supposed to be decentralized. Sects within the Bitcoin Cash community, for instance, have clashed over the influence of mining pool BitcoinABC, which accounts for two-thirds of the total hashrate. Bitmain’s mining pools, meanwhile, control nearly half of the bitcoin hashrate.

The advice given to miners is to join smaller, less influential pools, to make sure the networks stay in the hands of the people.

Pools vs. Governments

In China, bitcoin mining pools operate relatively freely, despite the blanket ban on cryptocurrency trading. Nevertheless, China is mulling cutting miners’ electricity supplies and has already seized a large amount of mining equipment.

Needless to say, large pools are now absconding with the equipment before the government can get it. Bitmain has expanded its operations significantly westwards. Mining pool BTC.TOP fled to Canada.

They often don’t fare much better in the U.S. The city council of Plattsburgh, in New York State, imposed an 18-month moratorium on mining in March as it awaited regulatory clarity. New York State also increased electricity fees for those using mining pools.

The Future

Mining pools might one day allow regular people to crowdsource funds. Take OsiaNetwork LLC. The company wants to allow constituents to pool their processing power to mine campaign funds for political candidates. US Federal Election Commission is considering whether or not to approve the proposal.

But it’s more likely mining, and mining pools, will die out. New cryptocurrencies tend to use systems that consume far less energy, like Proof of Stake or democratic voting systems.

Mining pools within a few years, might become a thing of the past.

By Matt Hussey

Learn

Jan 23, 2019

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2019 © Decrypt Media, Inc. All Rights Reserved.

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