Bitcoin Education: Types of BTC Mining Pool Payment Structures

September 12, 2021 - How-To Articles

Bitcoin Mining Pool

It is a big world out there.

That is a statement that often describes the importance of new perspectives, experiences, and gaining knowledge. Bitcoin has taken the world by storm in the past decade. It is changing how individuals think about money and what monetary value truly means. 

Naturally, aspects of Bitcoin like prices and trading activity will get the lion’s share of the headlines. Other equally essential subjects like mining don’t have the luster to attract as many eyeballs. 

Nonetheless, gaining knowledge about this sector is vital. Individuals can either choose to mine on their own through a farm or pool their resources together as they opt for a stipulated method of profit distribution. 

That will be the subject of this piece;

A Few Basic Ideas to Understand About Bitcoin Mining Pools

The concept of mining pools emerged just over two years after Bitcoin launched. Think of it from the perspective of a carpool. All participants use a shared resource, with one person bearing the logistical aspects and the rest contributing. 

Well, for mining pools, there are tweaks to the process. Instead of contributing regular gas money, you make a single significant investment. Additionally, the vehicle, in this case, Bitcoin mining rigs, produces rewards. The distribution of the mining profits goes along the lines of the logistical efforts and size of investments one ensure that this car runs efficiently. 

Bitcoin mining is an effort to try and earn block rewards from mining Bitcoin. Every ten minutes, new Bitcoins enter circulation and reward a miner who successfully adds a block of Bitcoin transactions to the blockchain. Additionally, the Bitcoin network has transaction fees for every successful transaction which goes to miners.

The essence of combining resources to mine Bitcoin is the high hash power that comes with significant cloud mining outfits. These operations are sizable, with Chinese mining pools dominating Bitcoin mining for over a decade. This dominance lasted until 2021, when the Chinese government decided to ban mining in the nation

Bitcoin mining pools take investor funds and purchase equipment. The high hash rate allows investors to earn decent rewards. Notably, different Bitcoin mining pools have their payment structures. 

They include the following:

  1. Pay-Per-Share (PPS)

Think of Pay-per-share as some salary. You get a flat payout for every share that the Bitcoin mining pool solves. The miner earns a fixed income every day for their investment and the earnings are relatively stable. 

In this model, the pool operator incurs the risk of variance and pays out from the pool fund during periods when the variance is below par. However, during bull cycles or periods of low mining difficulty, the pool operator stands to benefit more.

A notable variance may be the share that miners obtain from transaction fees in this payout model. Nonetheless, PPS works for some participants because it provides stability even during bearish runs. It is ideal for low-priced orders over a significant length of time. 

  1. Pay-Per-Last-N-Shares (PPLNS)

Pay-Per-Last-N-Shares allocate profits based on the number of shares members of a Bitcoin mining pool contribute. 

Unlike the first payout model, there is a significant fluctuation in mining profits. For instance, if the mining pool excavates multiple Bitcoin blocks per day, the members will profit significantly. On the other hand, when a mining pool does not reap any reward for their efforts in a day, the members go home empty-handed. 

Therefore earnings in a PPLNS revenue model depend on the mining pool’s fortunes. Mining is a highly competitive business that may not always generate the anticipated returns. The income of members increases or decreases, depending on pool returns. There may be significant variance in the short term, but there are long-term trends that may emerge. 

This model is better when investing in a big pool that has enough equipment to mine blocks regularly. Otherwise, you may have some days where you end up contending for scraps. The opposite scenario involves the potential for some wild profits when things go well. You have to accommodate both possibilities. 

  1. Full Pay per Share (FPPS)

For FPPS, the mining pool pays miners the expected reward from a block. Additionally, members also benefit from the resultant transaction fees. It is an enhancement of Pay per share because of the new aspect of transaction fees.

Bitcoin mining utilizes theoretical notions of rewards and transaction fees to compute payments. For instance, the pool operators calculate the standard transaction fee across the short term and distribute the same to miners according to their share. 

  1. Pay per Share + (PPS+)

This system combines PPS and PPLNS. The block rewards follow the relatively stable payments PPS model, while transaction fees follow the PPLNS mode. Therefore, the primary mining rewards have consistency, but the transaction fee settlements vary widely. Miners earn transaction fees dependent on their hash rate and the fortunes of the mining pool/.

It Is a Matter of What Works Best For You 

There are Bitcoin mining pools that use multiple combinations or simply agree with members on payment models in a democratic format. Such is the diversity within the crypto mining industry. 

Some mining pools use unorthodox payment methods that don’t fit into any of the above. 

Miners generally prefer models like the FPPS, where they get more of the mining rewards. Some would go for the PPS, where they get a semblance of stability in their earned rewards.

It is all a matter of finding what works best for your input into the mining pool. Regardless of the sharing formula, the mining pool has to first get the fundamentals right. 

The most important of these has to be the quality of Bitcoin mining equipment. It is the most crucial determiner of what the mining pool can produce. 

Others like the power sourcing, cooling arrangements and the number of people sharing the profits get other aspects that separate elite mining pools from fledgling ones. 

Advanced Mining Provides Professional Hosting Services for Prospective Miners

For the record, Advanced Mining is a professional hosting service provider in the U.S., not a Cloud miner.  Cloud mining companies own the mining equipment and facility, with pool members purchasing shares in the form of hash rate. 

Advanced is an equipment reseller and a professional host where rig owners belong to the client. 

Bitcoin miners— clients–own the hardware they purchase, with our services extending primarily to the efficient procurement and hosting of the equipment. Our equipment purchasing is efficient because we have a direct line to Bitmain, the best ASIC rig manufacturer globally. 

Bitmain’s gear has gained the reputation that top tech companies have in the smartphone or computer business. Bitmain has achieved this through years of quality output without compromising their elite standards. Therefore, this consistency has earned the faith of the mining community at large. 

Accordingly, we offer prospective miners an avenue to get started. Our hosting services highlight the two aspects that are hard to achieve mining at home. These are cheap electricity and natural cooling. This utility is possible because our data centers in cool areas of North America provide the optimum conditions. 

To top it off, our electricity is renewable energy, meaning that your equipment can mine without producing a high carbon footprint. This advantage has become increasingly important as Bitcoin has got more attention for its electricity consumption. 

Visit our Mining Shop to learn more about Bitcoin mining!

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