What are the profit distribution methods of mining pools?

The mining industry has become fiercely competitive due to the gradual increase in mining difficulty, but it has also given rise to the creation of mining pools, where groups of miners unite and collaborate to obtain these rare digital assets and allocate their resources among them in pursuit of earning rewards and coins. A mining pool is a group of cryptocurrency miners who work together to generate new blocks, with payouts distributed based on each participant's contribution. But what are the ways for mining pools to distribute profits? Some investors or miners do not understand that mining pools generally distribute rewards in a variety of ways. There are three main methods: pay per share, full pay per share, and pay according to the last N shares. The editor below will tell you in detail.

What are the ways for mining pools to distribute profits?

Mining pools allocate payouts based on participants’ contributions. Each mining pool has an administrator or coordinator, and miners pay a small pool fee to participate. There are three common ways to distribute income: payment per share, full payment per share, and payment based on the last N shares. The following is a detailed introduction:

1. Pay per share

Pay per share (PPS) is a simple payment method. Miners are paid based on their contribution in blocks. Before a block is found, each contribution is valued at a predetermined amount. The PPS system always pays miners, even if the organization does not find the block.

2. Full Pay Per Share

Full Pay Per Share (FPPS), also known as Pay Per Share Plus (PPS), is similar to the standard PPS reward system. However, when a mining pool discovers a block, the FPPS system rewards miners with additional transaction fees. In this way, miners can receive standard rewards and transaction fee rewards, which will be distributed equally among miners.

3. Pay by Last N Shares

"Pay by Last N Shares (PPLNS) only pays miners when a new block is discovered. The mining pool will then backtrack and look for deposited stakes to determine the winning block. This process is called the "time window" and the stakes provided during this period will be used to calculate the reward."

How does the mining pool work?

The operation of the mining pool relies on three main components: collaborative working agreement, collaborative mining service and mining software. The combination of these three components can enhance cooperation and efficiency among mining pool participants.

1. Cooperative work protocol:

The cooperative work protocol is an algorithm that allows multiple mining participants to work on a single block at the same time. It tracks each miner’s progress by linking their servers to ensure the smooth running of the blockchain and its native cryptocurrency.

2. Cooperative mining service:

The server must act as a connection, allowing multiple participants to pool resources in real time. This is called a collaborative mining service server. Mining acts as a decentralized platform, so owning servers can be counterproductive. However, mining pools require servers to maintain block generation and facilitate profits.

3. Mining software:

Each mining software provides unique features and functions. They establish connections between mining pools and servers, obtain the data needed for complex equations, and start solving them. When the software finds a solution, it sends the answer to the miner and proceeds to solve the following equation for the next block.

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