Digital currency mining is a required function for digital currencies to remain decentralized. Mining exists as a way of encouraging users to temporarily donate their computer’s resources in exchange for monetary reward, allowing transactions to be verified without the use of a central system. Mining pools combine many computers around the world to mine digital currency.
However, digital currency mining is not always profitable on an individual level. The fluctuating value of digital currencies and the uncertainty that their computer will earn rewards causes some users to lose money while mining due to electricity costs. As a solution, mining pools attempt to unite users, incentivize mining, and share rewards.
How digital currency mining pools operate
In the world of digital currencies, mining pools involve sharing the resources of all participating users, and dividing the rewards based on each user’s contribution. Users share their processing power and the mining pool often takes a fee.
Individuals that wish to mine digital currencies are not limited to mining pools, as anyone can mine through installing simple programs.
Mining individually has advantages as mining on your own means that you get to keep the entirety of the block reward. However, the chance of earning a block reward is much greater for those participating in mining pools, and steady rewards eliminate the risk of losing money as a result of electricity costs, making pools an attractive option for many.
Bitmain’s AntPool is one of the world’s largest mining pools
Owned by Bitmain, AntPool is a mining pool based in China that is credited with mining around a quarter of the world’s hashpower.
With servers across the world, AntPool earns significant profit through its large user base. This is not the only way that Bitmain engages in the digital currency mining industry, as the company also produces ASIC mining equipment, which accounts for a significant portion of its revenue.
China dominates the landscape with pools like BTC.com
The popularity of digital currency mining pools in China contrasts the country’s crackdown on the digital currency industry. Currently, some fear that the Chinese government shutting down exchanges will lead them to shut down digital currency mining facilities.
As Bloomberg reported in January 2018, China’s central bank outlined plans to limit the power supply available to some bitcoin miners. With Chinese mining pools currently accounting for a large portion of the world’s hashpower, it is unclear how the market would react to this disruption.
One possibility is that mining pools in other countries will claim the share of the market if China’s dominance starts to falter. According to Quartz, China currently accounts for more than two-thirds of the world’s processing power devoted to bitcoin mining.
BTC.com is an example of one of the world’s largest mining pools, and is also operated in China alongside many of the industry’s major players. BTC.com is another branch of the Bitmain umbrella, owned by the same company as AntPool.
Slush Pool is the world’s oldest mining pool
Published under the name Bitcoin Pooled Mining Server in November 2010, Slush Pool is credited as being the world’s oldest mining pool. Slush Pool went through many iterations in its long history, including its previous title as Bitcoin.cz Mining.
In its nearly 8 years of operation, Slush Pool accrued a loyal fan base and its own significant share of the market. Slush Pool offers heightened transparency through publishing information about mining participation, stating that its mission is to become the “most transparent and open mining pool in the world.”
Decentralization and critiques against mining pools
Digital currency mining primarily exists as a solution to keep digital currencies decentralized. However, users and corporations operating together in large numbers with similar interests can threaten the decentralized intent of these currencies.
This threat to decentralization is particularly significant in situations where mining pools operate a majority of a digital currency’s hashing power. With this influence, the pool would have significant control over the currency and could make decisions about its future.
Ultimately, mining pools are a difficult balancing act. At the current point in time, they are an extremely useful way of incentivizing users that may otherwise be uninterested in mining. Digital currency mining is the backbone of processing transactions, but for proponents of decentralization, it’s important that pools don’t attempt to govern these currencies.
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