how mining-pools work

how mining-pools work

What if there was a way to never have to buy Bitcoins or other cryptocurrencies again? What if you didn’t have to spend a dime to buy cryptocurrencies on exchanges?

Today we’re going to talk about mining pools, the association through which cryptocurrencies can be produced in association with other miners.

What are mining pools?
Cryptocurrencies are brought into circulation through a process known as mining, which involves solving rather difficult computational puzzles to find a new block on the blockchain. Once that block is found, it is added to the blockchain and more cryptocurrencies are created. This is exactly how Bitcoin is created through mining.

A mining pool is not a pool in the true sense, but something completely different. It is the collaborative work of crypto miners who share their resources and computational network to find a block. When this block is discovered, the reward is distributed between them in the order of the work done. These contributions are confirmed when the miner presents a valid Proof of Work. Mining cryptocurrencies can be very tiring, complicated and difficult, so few people do it.

It used to be a bit easier to find a block, but in recent years, mining cryptocurrencies has become so difficult that it can take a miner almost a century to find a block, which has led to the creation of mining pools. Miners have simply pooled their resources to quickly and easily generate more blocks and get their share of the rewards. This is definitely better than working alone and waiting years for a block.

Origin of Mining Pools

The idea of mining pools originated in 2010, when the first mining pool was created by a user named Slush. He named it Slushpool. Slushpool immediately went live in Poland, where it was founded, and the user Slush later became CEO and co-founder of Safe Deposit. The idea behind Slushpool was to unite low-powered and smaller miners to counter the practice of GPU mining used by large companies. The project was a success, allowing this group of miners to make better profits than they would have on their own.

Mining pools don’t just happen, however. They also require a certain amount of detailed work and interaction between three important parts.

  • The Cooperative Work protocol enables Bitcoin mining through cooperation. If the Bitcoin protocol did not allow this, it would be impossible to use mining pools. This used to be achieved by a function called “get work”, which was later extended by another function called “getblocktemplate”, which made things much easier.
  • Cooperative mining services (servers) such as bitcoind and p2pool help connect these servers through a central network.
  • The mining software helps miners connect to the mining server in the pool, supports collaboration, and allows the miner to receive payment for their service.
    Thanks to these three elements, miners can collaborate and use mining pools to generate cryptocurrencies. Now you know how these mining pools work.

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