Cryptocurrency pool- is one of the hottest subjects right now, so let’s discuss it!

Table of content:

- The beginning
- How the pool works
- Distribution of rewards per unit
- Cryptocurrency clearing
- Prop
- Pplns
- Pps
- Smpps
- Rsmpps
- Conclusion

When it comes to the cryptocurrency mining, you can not translate the words “miner” and “pool” literally, like “miner” and “pool”. “Miner” is the one who is engaged in the mining of bitcoins, and “pool” is a vital thing for mining the crypto currency.

The process of selecting a block signature, otherwise called mining, has a large computational complexity (difficulty). It is one of the most important parameters for the miner since it is the change in complexity that determines his income. During Bitcoin’s existence, complexity is continuously growing in the long term, therefore, it becomes more difficult for the miner to calculate the signature of the block alone.

The Bitcoin network is built in such a way that the reward (first 50 BTC, then 25, and soon only 12.5 BTC) for the valid block signature is the only method of issuing cryptocurrency. In addition to this fixed value, the miner who finds the block receives the number of commissions laid in all the transactions included in the block. Now, these are the tenth bits of bitcoin, but in the future, perhaps, the payment for transactions will exceed the emission component.

While the complexity was not high, there was a single, so-called “solo” mining. A solution to the computational problem could be obtained even on a single computer processor, so each miner worked alone and was himself rewarded in the form of a whole block.

With the growth of complexity, solo-mining has become a thing of the past. Now even with the most powerful specialized equipment, you can mine for years, but never find a hash for the signature of the unit – hundreds of such devices are needed. Therefore, when Bitcoin gained popularity, a technology of joint mining appeared – the pooling of many independent miners.

## How the pool works

“Pool” (cryptcoin pool) is a server that distributes the task of calculating the signature of the block between all the connected participants. The contribution of each of them is estimated using the so-called “ball” (share), which are potential candidates for obtaining a precious signature. As soon as one of the “ball” hits the target, the pool announces the readiness of the block and distributes the reward. So now you have an answer to what is cryptocurrency pool.

When calculating the consideration, all accepted balls are taken into account (there are nuances in some payment systems), regardless of whether the “ball” has turned into a signature of the block or not. This is the only way to achieve an equitable distribution of the coins. A miner with a small capacity can work for a very long time without finding a single block, but at the same time he will get his share of the total pie – he is paid for the probability that one of his decisions will be right. Sometimes this really happens.

In this case, inevitably there is a rejection of some ball. From 0.5% to 1.5% of potential results is lost due to the aging of the ball (stale share) and the inevitable technical mistakes. The “payroll” of the miner is calculated as follows:

The pool sets the minimum complexity of the ball that it takes. The value is usually an integer power of 2. It is chosen to minimize traffic from the user, while the decision flow must remain stable. For modern devices, the minimum complexity is usually set in the range 16-128, and the optimal operating value is in the range of 64-512. Typically, this complexity is set manually by the miner or automatically selected by the server. It has nothing to do with the actual amount of complexity that operates on the network and is used only for internal accounting.

Then, the pool sums all the balls received from the user for a period of time and multiplies them by the established working complexity. Thus, it turns out, as if the miner sent balls with a complexity of 1, but in a huge amount. This is the base value for calculating the earnings of the miners: the number of solutions of complexity 1 (Diff 1 shares). When the pool finds a block and receives a reward (25 BTC + commissions), the server divides this value by the number of complexity ball 1 received from all miners and then multiplies for each of the miners by the number of decisions taken from it.

After 120 confirmations of the found block, the pool gets the opportunity to dispose of the extracted bitcoins and distributes the reward to the accounts or purses of the miners after deduction of their commission, if any. Large pools make payments faster, often in advance – this is one way to attract more miners. When withdrawing from the pool, it is necessary to take into account the size of its commission, as well as the amount of the commission for withdrawing funds.

## Distribution of rewards per unit

Each pool has its own rules and payment modes. For the provided service, the pool gets its share, being calculated with the miners by one of thirteen systems.

The main reward systems

Crypto-currency clearing

## PROP (Proportional)

– proportional model, in which the reward for the block is divided strictly proportional to the share of the ball sent to each miner. Once the block is found – the counter of the received ball is reset and counting starts from zero. This is the simplest system, but payments are extremely unstable, especially for small pools. If the miner came and went during the “long” block – he will get very little, and if he is in a successful period – he can receive a reward several times the average on the calculator.

## PPLNS (Pay Per Last N Shares)

is also a proportional distribution, but smoother. One of the most difficult to understand systems, at the same time, the most effective for the pool, and for stable miners.

The payment is calculated for the amount of ball sent not for the time elapsed between the two blocks found, but for a fixed number of certain time intervals called “shifts”. The number and duration of “cipher” each pool chooses at its discretion.

Payments occur after the pool finds the next block. The magnitude of the reward is much less dependent on the time intervals between the blocks. If the block is not found for a long time, then the payment grows smoothly, if the pool is lucky and the blocks are strewed like from a cornucopia, then the payment for each individual block is reduced, but in the time N * the duration of the process the amount of payments remains more or less constant.

Let’s consider a simple example. On the pool, there is a PPLNS system with 10 ciphers, the duration of each is 1 hour. The hashtate of the user’s devices is 1/100 of the total pool capacity.

A full reward, similar to a proportional system, the miner begins to receive only after he has worked at full speed of his devices for more than 10 hours. If, at the time of receiving the block pool, it only manages 1 hour – it will earn only 10% of its share with a proportional distribution if 3 hours is 30%.

It would seem that pure water robbery. But if the user stops working on the pool, then in the next 10 hours he will still receive a reward – in 3 hours – 70% of the “normal” share, after 5 hours – 50% and so on. Charging will completely stop in the same 10 hours.

## PPS (Pay Per Share)

is a fixed payment for each ball accepted by the pool. In this case, the pool assigns a fixed fee for the ball. It is calculated on the basis of the reward for the block, divided by the current complexity in the network, and then multiplied by the number of the ball sent by the user with the complexity of 1.

## SMPPS

each ball is valued at face value, but at the expense of delay before payment, so that the pool can find blocks to replenish the reserve. The interval is usually 120 blocks (the standard number necessary to spend bitcoins from the issuance transaction). Usually, pools with this method of charging do not charge a commission. Examples: Eligius (0%).

## RSMPPS

when the block is found, the reward is distributed in proportion to the number of balls received from the miners for the last block, without taking into account the arrears of the previous blocks.

## Conclusion

So, cryptocurrency pool and its terminology are way easier than you thought!