Pooled Mining

In pooled mining multiple clients contribute to the generation of a block, and then split the block reward according to the amount of contributed processing power.  Pooled mining effectively increases the speed at which blocks are mined.

With increasing difficulty over time, mining with lower-performance devices can take very long before a block is generated on average. With Bitcoin solo mining has become pretty useless as you’ll have to wait months or even years to find a block in a solo setup. When you contribute your processing power to a pool, you usually get payed for each share you have processed. This way, instead of waiting for years to generate a single 25BTC block, a smaller fraction is gained on a much more regular basis. Solved shares of a block, processed by the miner, present a  proof of work and will be turned into smaller amounts of BTC.

Another advantage of pooled mining is that often multiple coins are mined at the same time without performance loss, this is possible because these coins share the same algorithm. More coins mined at the same time means more coins for the miner and thus more profit. Most of these coins are not worth allot but all little bits help. Bitcoin is usually mined together with Namecoin, Devcoin, I0Coin and ixcoin.

Most pools take a small percentage of the coins mined, this varies from 0% to 10%. The largest pools are:

Name          Location                 Reward Type     Merged Mining    Fee    
Slush EU/France Score NMC 2%
DeepBit EU/Germany PPS/Prop. 10%
BTC Guild USA/EU PPS NMC 5%
BitMinter EU/Germany PPLNS NMC 0%
EclipseMC USA/EU/AU/Asia DGM/PPS NMC 5%

 

As you can see there are many different reward types in pooled mining, here are some of the most used ones:

PPS – Pay Per Share

Each submitted share is worth a certain amount. The value of the share is calculated beforehand by the networks difficulty. This is risky for the pool operator as it might take much longer to find a block, often these kind of pools have a fee.

Prop. Proportional

When a block is found the reward is spread equally among all the shares.

PPLNS - Pay Per Last N Shares.

This is similar to Proportional except it looks at the last N shares.

DGM - Double Geometric Method

This is a combination between PPLNS and Geometric reward types. It removes some of the variance risk as the operator receives a larger portion of payout when blocks are found faster then expected and returns a bit when it takes longer then expected.

Score - Score based system

This is a proportional system weighed by time submitted. The shares are worth more in the function of time since the start of the current round. This makes later shares worth much more than earlier shares. The miner’s score will quickly diminish when he stops mining on the pool.

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