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Blockchain/Level III · The network/3.2 Mining/Lesson 2

Mining pools

The lottery that became a payroll, and the power it concentrated

MaterialsA block explorer with historical pool dataA spreadsheet or notebook for tracking hashrate sharesDocumentation from at least two active mining pools describing their payout schemes

Wonder

  1. Why does a miner with a single machine wait years for a reward while a pool pays daily?
  2. How can the work of a group of independent computers be measured fairly without one party cheating?
  3. What happens to transaction selection when a few operators control most of the network’s hash rate?

Explore

  1. Solo mining is a lottery with brutal variance. A small miner might run hardware for years without finding a single block, while another hits the jackpot overnight. To smooth this income into a stable stream, Marek Palatinus (Slush) launched BitcoinCZ Mining in late 2010. Pooled mining spread quickly in 2011, turning a lottery into a steadier income.
  2. Pools measure contribution through ‘shares.’ Each miner submits partial proofs of work at a difficulty far below the network’s, often by many orders of magnitude. These shares act as tickets in an internal lottery, proving hashing power without requiring a full block find. When any member finally finds a valid block header meeting the actual network target, the pool is paid, and members are paid according to the pool’s payout scheme.
  3. Payout schemes determine how risk is allocated between the pool operator and miners. PPS (Pay Per Share) pays a fixed amount per share, with the pool absorbing all variance; if the pool finds no blocks for days, it still owes payments. FPPS adds expected fees to this calculation. PPLNS (Pay Per Last N Shares) shares the luck: payouts depend on shares submitted within a recent window, meaning miners bear some of the risk but avoid paying insurance premiums to the operator.
  4. Concentration is the primary structural consequence. In June 2014 GHash.io briefly reached about half of the network’s hashrate; a month later it pledged to stay below 40%. Today, a handful of pools produce most blocks. This centralization creates tension: while pools stabilize income, they give operators significant influence over which transactions enter the blockchain, which could in principle be used to censor.
  5. Pool share can shift quickly. Miners can point their machines at a different pool in minutes, so a pool that alarms its members can lose hashrate fast, as GHash.io did in 2014. Pools also differ in fees, minimum payouts and whether they share transaction fees; and some now let members build their own block templates, a development covered in a later lesson.
  6. Open a block explorer such as mempool.space and examine the last hundred blocks. Note which mining pool is credited for each block. Compare this distribution with data from five years ago. Observe how many distinct operators appear in the current list versus then. This snapshot reveals the current degree of centralization and shows how dominance shifts as miners move between pools.

Key facts

  • Marek Palatinus (Slush) launched the first major pool, BitcoinCZ Mining, in late 2010.
  • Shares are partial proofs of work at a difficulty far below the network’s.
  • GHash.io pledged to keep its hashrate below 40% after approaching 50% in June 2014.
  • PPS payouts transfer variance risk to the pool operator; PPLNS shares that risk with miners.
  • The Stratum protocol (2012) allows real-time job updates from pool servers to miners.
  • Pool operators typically choose which transactions are included in block templates.

Exercise nine, six, three, one

9CollectList 9 mining pools or collective entities, historical or current. Note their launch year and peak hashrate share if known.
6ClusterGroup the 9 into 6 by payout structure: PPS-heavy, PPLNS-heavy, FPPS-heavy, closed/institutional, defunct, or other.
3DistillReduce the 6 to 3 primary reasons miners join pools rather than mining solo.
1CrystallizeWrite 1 sentence on what a pool operator controls in exchange for providing revenue stability.

Fact check

Dates, figures and claims checked against the published sources listed below.

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