Mining pool payouts are not well understood. However, different payout methods can play a major role in your profits. Read on to find out more.
October 25th, 2021| Mike Humphrey
How Does Crypto Mining Work?
Crypto mining is very similar to gambling. A crypto block is mined by entering random inputs into a hash equation until the correct solution is found. Imagine you’re at a casino in front of a slot machine. Every time you pull the arm is another chance of hitting the jackpot. Similar to this, every time your computer tries to solve the equation is like one more spin of the slot machine. The faster your computer can pull the lever the more attempts it makes to solve the equation and the more likely it is to hit a jackpot and earn block rewards. The rate that your computer spins the wheel is called your hash rate. Because your computer cannot solve the equation logically and must try random inputs, luck is a big factor in solving a block.
What is a Mining Pool?
When a block is sent out to be verified it is sent out to all miners. You must compete to solve the block first. As a single miner, you have a limited amount of computer power available. A mining pool allows you to combine your hash power with other miners to solve blocks faster. Higher hash rates mean faster successes. The rewards can then be split between all the miners in the pool. Pools increase the consistency of your mining rewards and reduce the impact of luck. With current block difficulties, the hash rates required to successfully mine blocks in a reasonable time-frame are quite high. For most miners, mining pools are the only way to guarantee they will get rewards.
How Does a Mining Pool Work?
When you connect your mining rig to a mining pool, you combine your mining power with everyone else in the pool. The pool sends you hashes to solve and you send those hashes back to the pool. The pool tracks your hashes and when a block is solved successfully you are sent a portion of the reward. Pools charge miners a small fee usually 1%-2% in order to mine on the pool. Pool fees are taken directly from rewards before they are distributed to miners.
How Do Mining Pool Payouts Work?
Mining pools split block rewards differently depending on how the pool is set-up. Pools will have different ways of splitting rewards between members. Different fee structures may distribute a portion of the transaction fees (gas fees) paid by the accounts performing the transaction. Below is a list of some of the most popular pool payout methods
Rewards are distributed to workers when a block is found, and are split proportionally by how many shares each worker found.
Pay Per Share (PPS)
Rewards are paid for each share submitted regardless of whether a block has been found or not. This puts all the risk on the mining pool and for this reason pools with this payout type usually have the highest fees.
Full Pay Per Share(FPPS) or Pay Per Share + (PPS+)
Full pay per share is similar to pay per share, but miners also receive a portion of the transaction fees.
Pay Per Last N Shares (PPLNS)
Pay per last N shares is similar to proportional, but instead of looking at the number of shares in a given block, it takes into account the proportion of shares the miner has contributed to the last N number of shares. PPLNS reduces the benefits of pool hopping. Miners could mine to a pool until a block was solved and then shift over to a new pool that was close to solving a block. This allows miners to catch blocks just before they are solved across multiple pools.
Full Pay Per Last N Shares (PPLNS+)
Full pay per last N shares is the same as PPLNS, but with miners receiving additional transaction fees.
With Solo mining a miner takes all the risk of luck on individually. If you have a high hash power this could be a reasonable option. For most miners however they don’t have sufficient hash rate power to be able to solve blocks in a reasonable time frame.
Recommended Mining Pool Payout
Of the mining pool payout methods, we recommend mining to a PPLNS+ pool. This payout method gives you both block rewards and transaction fees. PPLNS+ also limits the risk to the mining pool, which benefits you as a miner as it means the pool is more likely to continue and you are less likely to be shorted on payments. Make sure to consider the other mining factors listed below when choosing a pool. For more on how to pick a specific mining pool read our article Top 3 Crypto Mining Websites.
Other Mining Pool Factors To Consider
When considering mining pool payout types you must also consider the additional costs transferred to the miner by the pool. These can include transaction fees as well as the mining pool fee.
Mining Pool Fee
Mining pools make their money by charging a fee to the miners that operate on the pool. Fees can range anywhere from 0% – 2% depending on the pool setup. If you mine on Linux using HiveOS for example, the Hive Pool is free. Be sure to take into consideration the pool costs when comparing different pools.
When the pool sends rewards to miners wallets, there is a fee for the transaction. Each pool deals with transaction fees in different ways. Some pools cover the costs while others charge transaction fees to the miners. With the introduction of EIP 1559 on Ethereum, many Ethereum mining pools started transferring fees to the miners.
Although pool latency does not directly relate to mining pool payouts, its an important factor to consider when choosing a pool to mine to. Pool latency refers to the time it takes for you to communicate with a given pool. Your ping, measured in milliseconds, determines how long it takes to send a data packet from your computer over the internet to the pool and then back again. Latency determines how quickly you can send your solved hash back to the mining pool. Since you are competing with thousands of other miners, any delay in sending info to the server can give someone else the chance to submit their hash first (this is called a stale share). This means finding pools with low latency is critical to reducing your stale shares and will impact on your profitability.
Find Out More
We have compiled a list of the Top 3 Crypto Mining Websites. These sites will let you determine the ROI of your mining rig, make decisions about purchasing new cards, and allow you to find the best mining pool for you. Be sure to read the article to find out more.
Tell us which mining payout method you prefer and why in the comments below!
Hi I’m Mike, an active crypto investor DeFi enthusiast and crypto miner. I have been involved in crypto since March of 2021 and in DeFi since May 2021.
I’m also an avid outdoor adventurer!