By now, you already have an understanding of what bitcoin is and how it works. In fact, you probably own a stash of bitcoins (or satoshis) before reading this. During your research on virtual currencies, perhaps you’ve stumbled upon the topic of mining.
Mining bitcoins is a great way of getting your hands on some virtual currency without using cash. Basically, ‘mining’ means solving a mathematical equation on a block (part of the blockchain). After providing proof of work, miners are rewarded with bitcoins.
While early adopters enjoyed mining as a hobby, you’d be hard-pressed to find a miner who isn’t part of a mining pool nowadays.
What are mining pools and how did they change the bitcoin ecosystem? Are they a good or bad thing? Should YOU join one? Why or why not?
Intro to Bitcoin Mining Pools
As a virtual currency, bitcoin relies on what is known as blockchain technology. Each ‘block’ in the chain forms a series of characters, made possible by solving mathematical formulae. This is known as ‘mining’.
As more blocks are added to the chain, mining became harder and more complex. Not only that, but more and more people wanted in as well. Soon enough, companies sprouted up, all wanting to participate in mining and getting their hands on bitcoins before anyone else.
Mining as a hobby suddenly became unprofitable. Not only would you need to consider better hardware (as regular computer CPU’s are too slow at handling current calculations), you also need to think about electric consumption and time spent on this endeavor.
So what’s a miner to do to increase his or her chances of being rewarded with bitcoins?
Mining pools are your best bet. In general, they are miners who want to share their processing power over a network to quickly solve a block. Once bitcoins are rewarded, they divide it among themselves based on previously agreed terms. While gains aren’t as big, you can consistently get paid (instead of waiting for years for a block to be solved).
If you’re a Cryptography enthusiast and would love to mine for fun, joining bitcoin mining pools is a great way to get involved.
Choosing Bitcoin Pools for Beginners
Joining mining pools can be an exciting prospect.
For one, it’s because you’ll be part of one of the most important aspects of the bitcoin ecosystem. Without miners, there would be no one to verify bitcoin transactions. Second, mining is a great way to learn more about the complex inner workings of the world’s first virtual currency.
*Note: mining – even using pools – can be time and resource-heavy. It’s not advisable for folks who simply want to obtain bitcoins. If you simply want to get your hands on some BTC, check out buying bitcoins.
There are currently dozens of bitcoin mining pools to choose from. There are even mining pools for altcoins (bitcoin alternatives, such as bitcoin cash).
Before getting on board, there are three basic things you need to consider first:
- Check if you have the right hardware and system requirements
- Understand how you want to get paid
- Research on various mining pools
Remember that current calculations are so complex that it would generally take years if single miners worked on a block for bitcoins. A standard computer alone won’t normally do.
With the release of more powerful Application Specific Integrated Circuits (ASICs), you’d need a dedicated computer that can not only handle complex calculations so you can properly contribute to the network, but also store the originally bitcoin software (which also acts as your wallet). The beauty of NOT running on ASICs though is that, you’re free to mine altcoins like Litecoin.
While researching bitcoin mining pools, you will come to an understanding of how you want to get paid. Consider your needs and lifestyle before picking a good one, and know that you could always switch. One of the things users look at first is a fee that mining pool operators charge.
While there are pools that don’t charge anything, more trustworthy ones might charge anywhere from one to three percent. The first bitcoin mining pool Slush Pool for example, charges 2 percent for payouts for both bitcoins and Zcash. It might seem steep, but it’s one of the most trustworthy bitcoin mining pools out there as it’s been around since 2010.
The most common way to get paid is called PPS (Pay-per-Share). This means miners are paid a fixed amount each time a share is submitted. Slush Pool and Antpool have this type of payment system.
Other types of payment include Proportional (Prop) and PPLNS (Pay-per-Last-N-Shares). Both are somewhat similar, except that while the Prop approach rewards miners based on their number of shares, PPLNS rewards can be based on multiple rounds.
You can join Antpool using PPLNS, as well as the bitcoin mining pool Kano CKPool. Kano CKPool offers no threshold, which is good if you want smaller but more regular payouts.
When choosing which bitcoin mining pools to join in, take your time in your research. Narrow down your options and select the best one that suits your needs, lifestyle, and bitcoin values.
While joining large, popular mining pools might seem like the obvious decision, remember that they already have a large share of the hashing power (the ability to calculate faster, thereby getting more bitcoins).
Small but trustworthy mining pools are just as good – if not better. Joining them would help distribute the hashing power and ensure that NO one pool is in control of getting bitcoins.