How Bitcoin Mining Works

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In the context of cryptocurrency mininga mining pool is the pooling of resources by miners, who share their processing power over a network, to split the reward equally, according to the amount of work they contributed to the probability of finding a block. A "share" is awarded to members of the mining pool who present a valid partial proof-of-work. Mining in pools began when the difficulty for mining increased to the point where it could take centuries for slower miners to generate a block.

Slush Pool is the oldest currently active mining pool. Mining pools may contain hundreds or thousands of miners using specialized protocols. The Pay-per-Share PPS approach offers an instant, guaranteed payout to a miner for his contribution to the probability that the pool finds a block. Miners are paid out from the pool's existing balance and can withdraw their payout immediately.

This model allows for the least possible variance in payment for miners while also transferring much of the risk to the pool's operator. Miners earn shares until the pool finds a block the end of the mining round. In other words, all shares are equal, but its cost is calculated only in the end of a round. Bitcoin Pooled mining BPMalso known as "slush's system", due to its first use on a pool called "slush's pool', uses a system where older shares from the beginning of a block round are given less weight than more recent shares.

This reduces the ability to cheat the mining pool system by switching pools during a round, to maximise profit. PPLNS method is similar to Proportionalbut the miner's reward is calculated on a basis of N last shares, instead of all shares for the last round. Therefore, if the round was short enough all miners get more profit, and vice versa. GM was invented by Meni Rosenfeld. Multipools switch between different altcoins and constantly calculate which coin is at that moment the most profitable to mine.

Two key factors are involved in the algorithm that calculates profitability, the block time and the price on the exchanges. To avoid the need for many different wallets for all possible minable coins, multipools may automatically exchange the mined coin to a coin that is accepted in the mainstream for example bitcoin. This method also increases demand on the intended coin, which has the side effect of increasing or stabilizing the value of the intended coin.

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