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Mining pool

A mining pool is a collaborative group of cryptocurrency miners who combine their computational resources, such as processing power from specialized hardware, to collectively solve complex cryptographic puzzles required to validate transactions and add new blocks to a proof-of-work (PoW) blockchain, thereby sharing the resulting block rewards and transaction fees proportionally based on each participant's contributed effort.^[1] This approach originated in Bitcoin mining around 2010 to mitigate the high variance and low success probability of solo mining, where individual miners might go extended periods without earning rewards due to the network's escalating difficulty.^[2] By pooling resources, miners achieve more frequent and predictable payouts, though pools typically charge a small fee—often 1-3%—to cover operational costs like server maintenance and coordination.^[3] Mining pools operate through protocols like Stratum or getblocktemplate, where the pool operator distributes work units to participants, who submit "shares" as partial proofs of work that meet a lower difficulty threshold than the full network target.^[4] When the pool successfully mines a block, rewards are allocated using various payout schemes, including Pay-Per-Share (PPS), which provides fixed payments per share regardless of block success to eliminate variance for miners, or Proportional, which divides rewards based on shares submitted during the round a block is found.^[1] Other methods, such as Pay-Per-Last-N-Shares (PPLNS), aim to discourage "pool hopping"—where miners switch pools to exploit payout timing—by rewarding recent contributions over a fixed number of shares.^[2] As of November 2025, mining pools dominate PoW networks like Bitcoin, where the top five pools control over 70% of the hashrate, raising concerns about centralization and potential vulnerabilities such as the 51% attack, though this has not materialized due to economic incentives for honest behavior.^[5] The shift of Ethereum to proof-of-stake in September 2022 reduced the role of mining pools in that ecosystem, redirecting focus to Bitcoin and altcoins like Litecoin and Dogecoin.^[6] Despite benefits like accessibility for small-scale miners, pools introduce risks including operator dependency, fee deductions, and strategic attacks like block withholding, where infiltrators submit invalid work to siphon rewards from rivals.^[7] Overall, mining pools have democratized participation in blockchain security while amplifying debates on decentralization in cryptocurrency networks.

Fundamentals

Definition and Purpose

A mining pool is a collaborative arrangement among cryptocurrency miners who combine their computational resources, known as hashrate, to collectively solve the complex cryptographic puzzles required in proof-of-work (PoW) blockchain networks.^[1] In this setup, miners contribute their processing power to find valid blocks by repeatedly hashing block headers with varying nonces until a solution meeting the network's difficulty target is discovered.^[1] Once a block is successfully mined, the rewards—typically consisting of newly minted cryptocurrency and transaction fees—are shared among participants proportionally to their contributed effort, as measured by the work submitted to the pool.^[8] The primary purpose of mining pools is to address the high variance inherent in solo mining, where individual miners face unpredictable and often lengthy periods without rewards due to the probabilistic nature of PoW block discovery.^[9] By pooling resources, miners increase the collective hashrate, thereby elevating the group's probability of finding blocks more frequently and steadily, which smooths out income fluctuations for participants.^[1] This coordination is essential in PoW systems, where mining involves intensive computational searches for valid nonces to hash blocks, but the low odds for small-scale operators make independent efforts inefficient without such collaboration.^[8] Mining pools originated in the context of Bitcoin, the first major PoW cryptocurrency, but the model applies broadly to other PoW networks such as Litecoin and Ethereum prior to its 2022 transition to proof-of-stake.^[10] They became prominent after 2010, as Bitcoin's network difficulty surged with growing adoption, rendering solo mining impractical for most individuals who lacked sufficient hashrate to compete effectively.^[11]

Benefits and Limitations

Mining pools offer several key advantages to participants, primarily by mitigating the high variance inherent in solo mining, where rewards are infrequent and unpredictable due to the probabilistic nature of proof-of-work block discovery. By combining computational power, pools enable miners to receive steady, proportional payouts based on contributed hashrate, providing a more reliable income stream compared to the "lottery-like" wins of independent operation.^[1] This risk reduction is particularly beneficial for individual miners seeking consistent returns without the financial volatility of waiting potentially years for a block reward.^[12] Additionally, pools democratize access to mining for those with limited resources, allowing small-scale operators to contribute modest hashrate and earn rewards that would be unattainable solo. Shared infrastructure—such as server maintenance, software optimization, and network connectivity—lowers individual costs, as participants leverage the pool's collective efficiency rather than bearing full operational expenses. Payouts occur more frequently, often daily or weekly, contrasting with solo mining's irregular windfalls.^[13] For instance, a miner with 1 TH/s of hashrate faces near-zero probability of successfully mining a Bitcoin block independently, given the network's total hashrate exceeding 1,000 EH/s in late 2025; their expected success rate equates to roughly one block every several thousand years on average. In a pool, however, this same hashrate yields viable, ongoing micro-payments proportional to contributions.^[14] As of mid-2025, mining pools collectively control over 94% of Bitcoin's hashrate, underscoring their role in enabling widespread participation and consistent rewards while highlighting broader network dynamics.^[15] Despite these benefits, mining pools introduce notable limitations that miners must weigh. Operators typically charge fees of 1-2% on rewards to cover operational costs, reducing net earnings for participants; for example, established pools like Slush Pool apply a 2% fee. This dependency on pool reliability poses risks, as downtime, mismanagement, or operator failure can halt payouts and disrupt mining efforts, eroding the autonomy solo miners retain.^[13] Centralization represents a critical drawback, with dominant pools amassing majority hashrate that heightens vulnerability to 51% attacks, where a colluding entity could manipulate the blockchain by censoring transactions or double-spending. Such concentration undermines the decentralized ethos of cryptocurrencies and amplifies network security concerns. Furthermore, "pool hopping"—where miners switch pools to exploit payout variances—can destabilize operations, leading to unfair reward distribution and prompting some pools to implement countermeasures that may disadvantage loyal participants.^[8]

Historical Development

Origins in Early Cryptocurrencies

Bitcoin was introduced in January 2009 through the mining of its genesis block by creator Satoshi Nakamoto, establishing a proof-of-work (PoW) consensus mechanism designed to enable decentralized transaction validation without relying on trusted third parties.^[16] In the whitepaper outlining the system, Nakamoto described PoW as a way for nodes to demonstrate computational effort, preventing spam and achieving consensus via the longest chain, with mining rewards incentivizing participation. Initially, this setup allowed solo mining on standard central processing units (CPUs) to be viable for hobbyists and early adopters, as the network difficulty began at 1 and remained low throughout much of 2009, enabling individuals to mine blocks regularly with personal computers.^[17] By mid-2010, the landscape shifted dramatically as miners began adopting graphics processing units (GPUs) for their superior hashing efficiency, causing the network difficulty to surge from around 1.18 at the start of the year to over 14,000 by December.^[18]^[19] This exponential increase in computational power made solo mining increasingly unreliable due to high variance in block discovery times, where even capable setups might go weeks without rewards despite contributing to the network.^[19] As a result, the need for coordinated efforts emerged organically among the community, allowing miners to combine hash rates off-chain without altering Bitcoin's core protocol, thus addressing the unpredictability while preserving decentralization in consensus.^[20] The first public mining pool, Slush Pool, was launched on November 27, 2010, by Marek "Slush" Palatinus under SatoshiLabs, marking the inception of pooled mining as a practical solution for smaller participants.^[20]^[21] Prior to this, mining remained a niche, hobbyist activity dominated by CPU setups, but pools like Slush Pool democratized access by enabling consistent payouts proportional to contributed work, though they introduced reliance on pool operators to fairly distribute rewards and not abscond with funds.^[17] This development reflected Bitcoin's early evolution from experimental software to a network requiring collaborative tools for sustained growth.

Expansion and Key Milestones

Following the initial adoption in Bitcoin, mining pools expanded rapidly to support emerging altcoins between 2011 and 2013, with Litecoin serving as a key early example due to its launch in October 2011 and reliance on GPU-based mining that encouraged pooled operations similar to Bitcoin's model.^[22] This period saw pools like F2Pool emerge in May 2013, initially focusing on Bitcoin but quickly adapting to altcoins, facilitating broader ecosystem growth.^[23] The introduction of application-specific integrated circuits (ASICs) in 2013 further accelerated centralization, as these efficient hardware devices concentrated hashrate in large pools such as GHash.io, which operated from 2013 to 2016 and exemplified the shift toward industrialized mining.^[24] A pivotal event in 2014 involved GHash.io briefly surpassing 51% of Bitcoin's total hashrate in June, sparking widespread fears of a potential 51% attack that could enable transaction reversals or network disruptions.^[25] In response, GHash.io voluntarily committed to capping its hashrate at 39.99% through self-imposed limits and miner exodus, a move coordinated with industry stakeholders to preserve network security without regulatory intervention.^[26] The 2017 initial coin offering (ICO) boom spurred a surge in new proof-of-work (PoW) altcoins and blockchain projects, diversifying mining pools as operators adapted to support a wider array of tokens and increasing competition among pool providers.^[27] By 2021, China's nationwide ban on cryptocurrency mining activities dispersed global hashrate, with the United States emerging as the leading hub and European pools gaining share as miners relocated operations to comply with the restrictions.^[28] The Ethereum Merge in September 2022 marked the end of PoW mining for Ethereum, transitioning the network to proof-of-stake and eliminating the need for ETH-specific mining pools, which redirected hashrate to other PoW networks like Bitcoin.^[29] In November 2023, the OCEAN mining pool launched as a decentralized alternative for Bitcoin; it later introduced innovative software like the Decentralized Alternative Templates for Universal Mining (DATUM) in September 2024 to enable miners to select individual block templates and reduce centralization risks through enhanced transparency and control.^[30] As of November 2025, Foundry USA and AntPool dominate Bitcoin mining, collectively controlling over 50% of the network's hashrate—Foundry at approximately 32% and AntPool at 21%—amid ongoing concerns about potential centralization vulnerabilities.^[5] Concurrently, the rise of green energy-focused pools, such as those operated by CleanSpark emphasizing renewable sources, reflects growing emphasis on environmental, social, and governance (ESG) standards, with approximately 52% of global Bitcoin mining powered by sustainable energy sources (including 42.6% renewables and 9.8% nuclear) as of April 2025.^[31]^[32]

Core Mechanics

Mining Shares

In cryptocurrency mining pools, a mining share represents a valid proof-of-work hash that meets the pool's predefined difficulty target, which is significantly lower than the network's overall difficulty required to solve a full block. This lower threshold allows miners to demonstrate their computational effort regularly without needing to find a complete block solution, serving as a verifiable unit of contributed work. Shares typically consist of a block header hashed to a value below the pool's target, confirming the miner's activity while the pool verifies the associated coinbase transaction pays to the pool's address.^[4]^[12] Miners submit shares to the pool using the Stratum protocol, a communication standard released in September 2012 that replaced the obsolete getwork method and enables efficient job distribution and result reporting. Upon receiving a job, the miner computes hashes until finding a solution meeting the share criteria, then transmits the relevant block header data back to the pool for validation. The pool aggregates accepted shares from all participants to estimate each miner's hashrate contribution in real time, providing ongoing performance monitoring and proportional reward allocation based on verified effort.^[33]^[34]^[35] Pools adjust share difficulty dynamically based on a miner's reported hashrate to regulate submission frequency and network load, ensuring shares arrive at a balanced rate— for instance, a difficulty of 1 equates to an expected one share every $2^{32} hashes on average, with higher difficulties scaling linearly to require more hashes per share. Invalid shares, which fail validation due to errors like incorrect formatting or exceeding the target, are rejected and do not count toward the miner's contribution, potentially leading to reduced efficiency if frequent. The expected shares per second for a given setup can be calculated as:

\text{Expected shares per second} = \frac{\text{hashrate (hashes/second)}}{\text{share difficulty} \times 2^{32}}

This formula derives from the probabilistic nature of hashing, where $2^{32} represents the base hash count for difficulty 1.^[36]^[12]^[37] Shares facilitate precise, real-time oversight of mining operations, but "stale" shares—valid solutions submitted after the pool has transitioned to a new block template due to latency or propagation delays—are discarded and fail to earn credit, thereby lowering the miner's effective payout rate.^[38]^[33]

Variance and Pool Coordination

In solo mining, the discovery of blocks follows a Poisson process, leading to high variance in rewards due to the probabilistic nature of finding a valid block. The probability that a miner finds the next block is approximately equal to their hashrate divided by the total network hashrate, denoted as f = h / H, where h is the miner's hashrate and H is the network's total hashrate.^[2] Over a time period t, the expected number of blocks found by the miner is \lambda = f \cdot (t / \tau), where \tau is the target block interval (e.g., 10 minutes for Bitcoin). Since the number of blocks follows a Poisson distribution, the variance equals the mean \lambda, resulting in reward variance of B^2 \lambda (where B is the block reward). For small f, \lambda is low, causing long dry spells without rewards and high relative uncertainty in income.^[39]^[2] Mining pools mitigate this variance through coordinated aggregation of hashrate from multiple participants. A central pool server assigns work units—typically block templates with varying nonces—to connected miners, who compute hashes and submit proof-of-work shares that meet a lower difficulty threshold. The server verifies these shares to confirm computational effort and monitors for any share that solves the full block difficulty. Upon finding a valid block, the server submits it to the network and distributes rewards proportionally among contributors based on their verified shares. This structure leverages the law of large numbers: the pool's combined hashrate H_p yields a higher \lambda_p = (H_p / H) \cdot (t / \tau), smoothing out individual fluctuations as the pool behaves like a single large miner.^[40]^[2] The variance reduction can be quantified by considering the relative variance of rewards. For a pool with hashrate fraction f = H_p / H, the number of blocks N found by the pool over an interval with expected total network blocks n = t / \tau follows N \sim \text{Poisson}(\lambda = f n), so \text{Var}(N) = f n. The pool's total reward is R = B N, with \text{Var}(R) = B^2 f n and expected value E[R] = B f n. The relative variance is \text{Var}(R) / [E(R)]^2 = (f n) / (f n)^2 = 1 / (f n). For an individual miner contributing fraction q = h / H_p of the pool's hashrate, their expected reward r = q \cdot E[R] = B (h / H) n, but the variance scales as q \cdot (B^2 / D) (where D is share difficulty), effectively reducing it by a factor of q compared to solo mining—equivalent to an overall improvement proportional to $1 / f relative to the individual's solo fraction. This derivation shows that larger f lowers the standard deviation of rewards relative to the mean, providing more predictable payouts.^[2] A pool controlling 10% of the network hashrate, for instance, is expected to find blocks approximately every 100 minutes, offering far more consistent reward intervals than a solo miner with a tiny fraction of the network. While this coordination yields smoother income streams, it introduces a minor risk of lost revenue from orphan blocks, which occur when propagation delays cause the pool's block to arrive after a competing block (typically resulting in an efficiency loss of about 0.3% across pools from orphans, with additional losses from stale shares).^[2]^[41]

Reward Distribution Methods

Pay-per-Share (PPS) is a reward distribution method in cryptocurrency mining pools where miners receive a fixed payout for each valid share they submit, irrespective of whether the pool successfully mines a block. This system transfers the full variance risk associated with block discovery to the pool operator, who guarantees payments based on the miner's contributed computational effort. By design, PPS provides miners with immediate and predictable income, simulating a steady wage for their hashrate contribution.^[42]^[1]^[2] The payout under PPS is calculated as the product of the number of valid shares submitted by the miner and the predetermined value per share. The share value is derived from the expected block reward (including transaction fees) divided by the anticipated number of shares required to mine one block, which is tied to the network's difficulty level. This ensures that, on average, the pool's total payouts align with its block rewards over time, though short-term fluctuations are absorbed by the operator. For instance, if the block reward is 3.125 BTC as of 2025 and the expected shares per block is based on current difficulty, each share's value remains constant until network parameters change.^[43]^[44]^[45] A common variant is Full Pay-Per-Share (FPPS), which includes an estimate of transaction fees in the share value to better reflect actual block rewards. FPPS is widely used in modern pools, such as Braiins Pool and F2Pool, providing more accurate payouts that account for varying fee markets as of 2025.^[46] The expected payout rate for a miner in a PPS system can be expressed as:

\text{Expected payout rate} = \text{hashrate} \times \frac{\text{block reward}}{\text{network difficulty}}

This formula highlights the linear relationship between a miner's hashrate and their earnings, normalized by the network's overall difficulty, assuming unit share difficulty for simplicity. The full risk transfer means the pool must maintain reserves to cover periods of poor luck, preventing insolvency during extended dry spells without block finds.^[44]^[2] PPS appeals to risk-averse miners seeking stable income, as it eliminates the uncertainty of block-based rewards, but it comes with drawbacks including higher pool fees—typically 2% to 5%—to compensate the operator for assuming variance risk. Additionally, the model's reliance on the pool's financial health exposes miners to potential losses if the operator faces insolvency due to prolonged bad luck or mismanagement. Pools like BTC.com popularized PPS before 2020 by offering it as a core payout option, attracting miners prioritizing consistency over potential upside from variable schemes.^[43]^[47]^[48]

Proportional

The proportional method is a reward distribution system in mining pools where the block reward is divided among participants based on the number of valid shares they submitted during the specific round in which the block was successfully mined. A round begins immediately after the previous block is found and ends when the current block is solved by the pool, encompassing all shares contributed from one block discovery to the next. This approach ties payouts directly to the collective effort within each individual round, ensuring that rewards reflect the proportional contribution to that successful outcome.^[2] The payout for an individual miner under this method is calculated as the product of their share of the total round shares and the block reward, formally expressed as:

\text{Payout} = \left( \frac{\text{[miner](/page/Miner)'s shares}}{\text{total round shares}} \right) \times \text{block reward}

This formula provides a straightforward allocation, where the block reward—typically 50 BTC in Bitcoin's early years, halved periodically—serves as the numerator's multiplier. The round length, or the number of shares required to find a block, varies randomly and follows a geometric distribution with success parameter p = 1/D, where D is the network difficulty; consequently, the expected number of shares per round equals D, representing the network difficulty divided by the share difficulty (often normalized to 1 for low-difficulty shares).^[2] One advantage of the proportional method is its simplicity, requiring no upfront payments from the pool operator and thus imposing no financial risk on them beyond standard operations. It also reduces payout variance for small miners compared to solo mining by a factor of approximately D \ln D, promoting more stable earnings through pooled coordination—though this stability is round-dependent and contrasts with the fixed-rate predictability of pay-per-share (PPS) systems. However, the method introduces high variance across rounds due to uneven lengths, potentially leading to prolonged dry spells if a round extends significantly beyond the expected D shares. Additionally, it incentivizes "pool hopping," where miners join only near the end of promising rounds to maximize shares in short, successful ones, which can reduce rewards for consistent participants by up to 43%.^[2] As one of the earliest reward methods adopted in the 2010s, shortly after the emergence of Bitcoin mining pools in late 2010, the proportional system gained initial popularity for its intuitive fairness but prompted the development of score-based variants to mitigate pool hopping vulnerabilities.^[2]

Pay-per-Last-N-Shares (PPLNS)

Pay-per-Last-N-Shares (PPLNS) is a reward distribution method in cryptocurrency mining pools that allocates block rewards based solely on the shares submitted by miners in a fixed recent window, typically the last N shares before a block is successfully mined. This approach eliminates the round-based structure used in earlier methods like proportional payouts, instead focusing on recent contributions to ensure fairness and discourage pool hopping, where miners switch pools to exploit temporary high-reward rounds. By limiting rewards to a trailing window of shares, PPLNS incentivizes consistent participation, as older shares outside the window receive no payout, making it unprofitable for miners to join briefly and then leave.^[49] The calculation of payouts in PPLNS occurs only when the pool finds a valid block. The block reward, minus the pool's fee f, is divided equally among the last N shares submitted to the pool, regardless of who submitted them. For a specific miner, their payout is determined by the proportion of shares they contributed within that window:

\text{Payout} = \left( \frac{\text{Miner's qualifying shares in last } N}{\ N\ } \right) \times (1 - f) \times B

where B is the block reward. Here, N is a pool-defined parameter, often set to correspond to the expected number of shares for approximately six times the network's average block interval (e.g., about one hour for Bitcoin's 10-minute blocks), balancing payout frequency and variance reduction. This setup results in an expected payout per share of (1 - f) p B, where p is the probability of a share leading to a block, with variance reduced by a factor of approximately N compared to solo mining. PPLNS offers several advantages, including strong resistance to pool hopping due to its emphasis on recent activity, which aligns miner incentives with long-term pool stability, and a shared variance model that reduces short-term payout fluctuations compared to proportional methods while avoiding the pool operator's full risk exposure seen in pay-per-share systems. However, it requires complex tracking of the sliding window of shares, increasing operational overhead, and the choice of N influences the "luck" factor—smaller N leads to higher variance and more frequent but smaller payouts, while larger N smooths rewards at the cost of delayed payments. The method was introduced around 2011 as part of early efforts to address limitations in pooled mining reward systems and remains a standard in many pools, including variants like the score system originally used by Slush Pool.^[49]^[50] In terms of qualifying probability, shares within the N-window have an equal chance of contributing to a payout upon block discovery, but the overall probability for any given share decays to zero outside this fixed boundary; for shares approaching the window's edge, the effective hashrate weighting can be modeled considering the Poisson-distributed block arrival process, where the probability that a share remains in the window when a block is found decreases with its age relative to the expected block interval.

Geometric Method

The Geometric Method is a reward distribution system for cryptocurrency mining pools that assigns scores to submitted shares using a geometric decay function based on their position or time relative to the end of a mining round, thereby incentivizing sustained participation and reducing incentives for pool hopping. Developed by Meni Rosenfeld in 2011 as an improvement over earlier score-based systems like Slush's method, it provides a mathematically grounded approach to fairly allocate block rewards while mitigating variance for miners.^[2] In this system, each share contributes to a miner's cumulative score, which decays exponentially for subsequent shares, ensuring that contributions from earlier in the round have diminishing influence over time. This time-weighting mechanism rewards consistent hashrate provision across the round, making it disadvantageous for miners to join late or leave early to exploit short-term luck.^[2]^[51] The score calculation begins with an initial multiplier s = 1 and updates for each new share k as follows:

S_k = S_k + s \cdot p \cdot B

followed by

s = s \cdot r

where S_k is the miner's score, p = 1/D (with D as the network difficulty), B is the block reward, and the decay factor r = 1 - p + p c with $0 \leq c \leq 1 as a variable fee parameter controlling the operator's risk absorption (e.g., r \approx 0.999 for typical values). The payout per block is then (1 - f) \frac{(r - 1) S_k}{s p}, where f is a fixed fee, and the total pool score determines proportional shares. This decay ensures older shares contribute minimally, as their influence geometrically diminishes with increasing t (time steps from round end), effectively prioritizing recent contributions. In limiting cases, such as sharp decay (low c), the method approximates window-based systems like PPLNS by focusing on a finite effective history of shares.^[2] Advantages of the Geometric Method include its resistance to pool hopping through the decay mechanism, which smooths reward variance compared to pure proportional systems (with variance reduction factor approximately $1 + 2c/p), and its transparency in scoring. However, it introduces complexity in implementation, requiring careful handling of score accumulation to avoid numerical overflow, and shifts more variance risk to the pool operator as c increases. Overall, it balances fairness and stability, making it suitable for pools seeking to deter manipulation without fully eliminating operator involvement in risk.^[2]

Double Geometric Method

The double geometric method (DGM) extends the geometric reward system in mining pools by incorporating partial score carryover across block rounds, creating a hybrid approach that balances anti-hopping protections with reduced variance for participants. Unlike the single geometric method, which fully resets scores at each round's end, DGM applies exponential decay within rounds while allowing a tunable fraction of scores to persist into subsequent rounds, effectively penalizing mid-round joiners and leavers through diminished contributions from transient participation. This bidirectional decay mechanism—forward within the round via scaling factors and backward across rounds via leakage—ensures steady-state expected payouts per share, deterring pool hopping by eliminating timing-based incentives.^[52] In DGM, a miner's score S_k is updated upon submission of each valid share as S_k = S_k + (1 - f)(1 - c) \cdot p \cdot B, where f is the fixed fee fraction, c is the average variable fee fraction, p = 1/D is the share probability (with D as the target difficulty), and B is the block reward. A global scaling factor s grows as s = s \cdot r with each share, where the growth rate r = 1 + p (1 - c)(1 - o)/c and o (0 ≤ o ≤ 1) controls cross-round leakage. When the pool finds a block, the payout to the miner is (1 - o) \cdot S_k / (c \cdot s) \cdot B, after which the score decays to S_k = S_k \cdot o. The factors f, c, and o are tuned by the pool operator to align with policy goals, such as variance absorption, with total fees per block equaling (c + f - c f) B. This formulation achieves hopping-proof properties by maintaining consistent per-share rewards regardless of submission timing.^[52] DGM offers stronger protection against pool hopping compared to the single geometric method, as the leakage parameter o reduces incentives to switch pools at round boundaries by preserving partial score value, while still applying intra-round decay to favor consistent contributors. It promotes fairness for long-term miners by smoothing payouts over multiple rounds, particularly in environments with volatile hashrate, but introduces higher computational overhead due to ongoing score scaling and parameter management. Although rare in adoption, DGM has been implemented in advanced pools since its proposal in 2011, providing a refined alternative for operators seeking to mitigate variance without fully shifting risk to participants.^[52]

Specialized Variants

Specialized variants of mining pools deviate from traditional centralized models by emphasizing individual autonomy, decentralization, or reduced operator control, often to mitigate risks like high variance or trust dependencies. These include solo mining pools, which aggregate hashrate for efficiency while awarding full block rewards to the discovering miner, and peer-to-peer (P2P) pools that distribute coordination across nodes to enhance network resilience. Such variants emerged as responses to centralization concerns, particularly after the 2021 China mining ban, which relocated much of the global hashrate to regions like North America but left pool dominance in few hands.^[53] Solo mining pools function as a hybrid, where participants contribute computational power to a shared stratum server for work distribution but retain the entire block reward—minus a small fee—if their hardware solves the block, effectively blending pooled efficiency with solo variance. This approach suits miners seeking independence without the overhead of running a full node, as the pool handles block template propagation and validation. A prominent example is Solo CKPool, launched in 2014 by developer Con Kolivas, which charges a 2% fee and requires no registration or wallet disclosure, directing 98% of rewards directly to the miner's address upon success.^[54]^[55] By 2025, Solo CKPool had facilitated notable wins, such as a 3.154 BTC block in July, underscoring its viability for high-risk, high-reward strategies amid rising network difficulty.^[56] Peer-to-peer mining pools decentralize operations by leveraging distributed protocols, eliminating reliance on a single operator and allowing miners to verify shares and templates collectively, which reduces risks of censorship or fund misappropriation. Early implementations like P2Pool, introduced in 2011, operate via a sidechain of share blocks where miners form a mesh network to propagate work and rewards proportionally, ensuring no central point of failure.^[57] More recent advancements, such as Stratum V2—a protocol specification released in 2021 by Braiins in collaboration with developers like Matt Corallo—enhance this model with end-to-end encryption, lower latency, and miner-controlled block construction, enabling P2P share exchange without full node requirements.^[58]^[59] A key 2023 example is OCEAN, a non-custodial Bitcoin pool founded by Bitcoin Core contributor Luke Dashjr, which uses Decentralized Alternative Templates for Universal Mining (DATUM) to let participants generate and select custom block templates, fostering greater miner sovereignty and addressing centralization critiques where the top four pools control about 70% of hashrate as of 2025.^[60]^[61]^[5] Backed by investors including Jack Dorsey's seed funding of $6.2 million, OCEAN launched in November 2023 and by 2025 had attracted institutional support from Tether, emphasizing transparency through on-chain reward distribution without operator intervention.^[62]^[63] Pooled mining, as an early generalized variant predating formalized schemes like PPS, refers to the basic coordination of multiple miners to jointly pursue and submit blocks, with rewards divided based on contributed proof-of-work shares, often proportionally to reduce individual variance. This concept originated in Bitcoin's formative years around 2010, exemplified by Slush Pool—the first operational pool—which used simple share-based splitting without advanced scoring, paving the way for later refinements while highlighting the need for trust-minimized structures in decentralized networks.^[64]^[50]

Operational Features

Transaction Fees

In Bitcoin and similar proof-of-work blockchains, transaction fees serve as a variable component of the block reward, supplementing the fixed subsidy that halves approximately every four years. Following the 2024 halving, the Bitcoin subsidy dropped to 3.125 BTC per block, making fees increasingly vital for miner incentives as the subsidy diminishes further toward zero by around 2140.^[65] These fees, paid by users to prioritize their transactions in the mempool, compensate miners for including transactions in blocks and contribute to network security by encouraging continued participation.^[66] Mining pools integrate transaction fees into reward distribution according to the chosen payout method, ensuring miners receive a portion based on their contributed hashrate. For instance, in Full Pay-Per-Share (FPPS) systems, pools estimate average fees over a recent period—such as the prior 24 hours—and add this to the per-share payout, providing stable rewards that account for fee variability.^[67] Pools typically pass these fees to miners after deducting their service fee, which ranges from 1% to 3% of total rewards; some operators, like F2Pool, allocate 100% of block rewards including fees to participants minus this cut, without additional payout charges above minimum thresholds.^[68]^[69] In 2025, average Bitcoin transaction fees per block have been modest amid fluctuating network demand, typically ranging from 0.02 to 0.03 BTC as of late 2025, with occasional spikes during high network activity up to around 0.05 BTC.^[70]^[71] This variability underscores fees' role in total revenue, where the block reward is formally expressed as:

\text{Total reward} = \text{[subsidy](/page/Subsidy)} + \sum \text{[fees](/page/Fee)}

Miners' shares are then distributed as a function of this total reward and the pool's method, such as proportional allocation based on submitted shares.^[66] Pools manage fee inclusion through their stratum servers and full nodes, which select transactions from the mempool based on fee rates (measured in satoshis per virtual byte) to maximize block value. Higher-fee transactions are prioritized to optimize revenue, but this process introduces risks like fee sniping, where a malicious pool operator could attempt to re-mine a recent block to capture its fees, potentially eroding trust if not mitigated by protocol rules or community oversight.^[72] Such manipulations are rare due to economic disincentives and the competitive nature of pooled mining, but they highlight the importance of transparent pool operations.^[73]

Multipool Strategies

Multipool strategies involve mining pools that dynamically switch between multiple cryptocurrencies or algorithms to target the most profitable options at any given time, allowing miners to contribute hashrate to whichever coin yields the highest returns based on real-time market conditions. These pools employ automated systems, such as profit-switching mechanisms like those implemented in platforms such as Mining Pool Hub's AutoSwitch, to monitor factors including coin difficulty, block rewards, and exchange rates against a base currency like Bitcoin or USD. Miners connect their hardware to the pool, which directs their computational power to the optimal coin, often altcoins, without requiring manual intervention from the user. This approach emerged as a response to the volatility in cryptocurrency markets, enabling pools to arbitrage differences in profitability across networks. The mechanics of multipools revolve around aggregating rewards from various coins and converting them into a unified payout, typically calculated as the sum of individual coin block rewards multiplied by their prevailing exchange rates. For instance, if a pool mines rewards in Coin A worth 5 units and Coin B worth 3 units, with exchange rates converting them to 0.01 BTC and 0.02 BTC respectively, the total revenue per block becomes 0.03 BTC, distributed proportionally among participants after fees. Multipools also support merged mining, where a single proof-of-work effort secures multiple blockchains simultaneously; a prominent example is Namecoin merged with Bitcoin, allowing Bitcoin miners to earn Namecoin rewards as a byproduct without additional hashrate, as the auxiliary proof-of-work (AuxPoW) embeds one chain's block header into the other's. This dual-reward system enhances overall efficiency but requires compatible algorithms, such as SHA-256 for both networks. The primary advantages of multipool strategies include higher potential returns through continuous profitability optimization, as the pool can shift to coins experiencing temporary price surges or lower network difficulty, effectively arbitraging market inefficiencies. However, drawbacks encompass increased operational complexity due to frequent algorithm switches, which can introduce latency or compatibility issues with mining hardware, and heightened volatility in earnings from rapid coin transitions. Additionally, multipools often impose transaction fees ranging from 1% to 3% on payouts to cover conversion and operational costs, which can erode margins during low-profit periods. Research indicates that while profit-switching can boost yields, round-robin multipool allocations may reduce overall rewards compared to focused single-coin mining due to suboptimal diversification. These strategies gained significant traction from 2017 to 2020 amid the altcoin boom, when volatile markets incentivized switching to maximize gains from emerging tokens. In 2025, platforms like NiceHash exemplify multipool evolution through its hashrate marketplace, where miners rent out power to the highest bidder across algorithms, effectively creating a dynamic multipool environment that pays out in Bitcoin regardless of the underlying coin mined. Following Ethereum's Merge in 2022, which ended proof-of-work mining for ETH, multipools adapted by redirecting GPU hashrate to compatible altcoins such as Ravencoin (using KAWPOW) and Ergo (using Autolykos2), where profitability analyses post-transition highlighted these as viable alternatives for former ETH miners seeking sustained returns.

Proof-of-Capacity (PoC) Pools

Proof-of-Capacity (PoC) is a consensus mechanism that leverages available hard drive storage space rather than computational power to validate transactions and secure the blockchain, as pioneered by Burstcoin in 2014 and later adapted by networks like Chia in 2021.^[74]^[75] In PoC systems, miners, often referred to as farmers, pre-compute and store cryptographic data in plot files on their storage devices, which serve as proofs of allocated space. Mining pools in these ecosystems coordinate collective plot farming by aggregating participants' storage contributions, enabling smaller operators to participate effectively without the high variance of solo mining. This approach contrasts with Proof-of-Work (PoW) by emphasizing terabytes of storage over hashrate, reducing reliance on energy-intensive hardware and allowing mining with underutilized drives.^[74]^[76] The core mechanics of PoC pools involve miners generating and submitting plot solutions—analogous to shares in PoW pools—to the pool operator for evaluation against network challenges. In Burstcoin, for instance, plots are divided into fixed-size segments called scoops, from which miners calculate deadlines representing the time to generate a valid block solution; these deadlines are submitted to the pool, which selects the best (shortest) one to forge the block when it wins. Similarly, in Chia's Proof of Space and Time variant, farmers submit frequent proofs of space to the pool server via a Plot NFT contract, earning points proportional to their contributed space (e.g., a standard k32 plot yields approximately 10 points per day, scaled by network difficulty). In May 2025, Chia introduced a new Proof of Space protocol via hard fork, featuring smaller plot sizes and enhanced security, affecting pool farming strategies.^[77] Successful block wins, or "scoop finds," trigger reward distribution among pool members based on their submitted solutions or points, typically after deducting a small operator fee, providing steadier payouts compared to the lump-sum nature of solo successes.^[74]^[76] PoC pools first emerged prominently with Burstcoin's community-operated pools around 2015, shortly after the network's 2014 launch, allowing collaborative mining to mitigate the probabilistic nature of finding optimal deadlines.^[78] These pools highlight PoC's energy advantages over PoW, as plotting is a one-time computational task followed by low-power storage and periodic proof generation, consuming far less electricity—often cited as orders of magnitude more efficient for equivalent security.^[74] A key difference in PoC pools is the focus on storage density rather than computational hashrate, leading to variance influenced by plot quality and total network space rather than luck in hash collisions. Scoop difficulty in PoC adjusts dynamically with overall network storage, ensuring fair competition; the expected number of successful finds for a miner is given by the ratio of their plots to the total network space:

\text{Expected finds} = \frac{\text{Number of plots}}{\text{Total network space}}

This formula underscores how rewards scale linearly with contributed capacity, promoting efficient resource pooling without the exponential energy costs of PoW.^[79]^[74]

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