Mining pools

What is Mining pools?

Mining pools are collaborative groups of cryptocurrency miners who aggregate their computational power over a shared network to increase the likelihood of solving a block and earning associated rewards. In Proof of Work (PoW) systems like Bitcoin, mining difficulty is high and increases over time, making it progressively harder for solo miners to successfully generate blocks and receive block rewards. Mining pools provide a solution to this challenge by allowing participants to work together and share the rewards proportionally, based on their contributed hash rate.

When a mining pool successfully mines a block, the cryptocurrency reward - comprising both the block subsidy and the transaction fees included in that block - is distributed among the pool members. The division is typically calculated using a reward-sharing method such as Pay Per Share (PPS), Proportional, or Pay Per Last N Shares (PPLNS), each with its own risk/reward model. For instance, in a PPS model, miners are paid a fixed amount for each share submitted, regardless of whether a block is found, providing predictable payouts. In contrast, PPLNS pays out only when the pool actually finds a block, making earnings more variable but potentially higher over time.

Mining pools operate using specialized software and protocols that enable participants to contribute their computational work in real time. The pool operator typically manages the infrastructure, coordinates work assignments, validates completed shares, and disburses rewards. Well-known pools like AntPool, Slush Pool, and F2Pool command significant portions of the global hash rate and often support multiple cryptocurrencies beyond Bitcoin, such as Ethereum (before its switch to Proof of Stake), Litecoin, and Zcash.

While mining pools make participation more accessible and profitable for smaller miners, they also raise concerns about centralization. A small number of dominant pools could control significant portions of a network’s mining power, theoretically enabling coordinated actions such as block censorship or even 51% attacks. As a result, decentralization advocates promote the use of smaller or geographically diverse pools to reduce systemic risks.