Mining pool reward FAQ
How does mining in a pool improve my payouts?
What reward systems are there?
All reward systems use the concept of "share", a hash which is easier than the real difficulty and proves you have worked on finding a valid block. Your reward when the pool finds a valid block depends on the shares you submitted.
The main reward systems used are:
- Pay per share: Every share submitted receives a fixed BTC reward known in advance. This has virtually 0 variance and is thus good for beginners. However, the operator is subject to enormous variance, and will thus take a large fee to cover his risk. This means the expectation for participants is low, so it's not an attractive long-term solution. It is also vulnerable to cheating where the miner simply withholds all block-finding shares, causing a certain loss to the pool operator.
- Proportional ("Share-based"): Every time a block is found, its reward is split between participants according to the number of shares they submitted. This method can be most effectively mined using a strategy known as "pool-hopping" which can potentially (if executed perfectly) increase the overall earnings per time period for the miner by as much as 30% (when only one miner is hopping) without helping increase the pools' (or Bitcoin network's) overall hashrate. However, if all miners practice "pool-hopping", the pools being "hopped" out of will come to a standstill, and not find blocks at all, leading to the long/short block distinctions being spread more or less equally across all pools. However, this spreading will result in a very uneven load on pools, with all the mining being done on the pool with the lowest shares in it, while the others sit idle. This strategy is considered by some to be cheating, and, whether cheating or not, is potentially liable to result in the miner being blacklisted from pools.
- Score-based: Each share submitted receives a score based on its age, and the block reward is split between participants according to their score. The variance of this method is slightly higher than proportional. If you only mine several hours a day or disconnect in the middle of the round, this method is disadvantageous as the shares already submitted will depreciate as newer shares are submitted. The method used by slush's pool and BTCmine claim to be resistant to pool-hopping, while the one used by Continuum pool ("geometric method") claims complete immunity. However, in reality this method might merely invert the algorithm used for pool-hopping.
Every share will give you, on average, the block reward (minus any pool fees) divided by the difficulty. For example, with a block reward of 50 BTC, 2% fee and difficulty of 240000, each share submitted will give on average 0.000204 BTC (204 μBTC).
On average, one share will be found for every 2^32, or 4.295 billion, hashes calculated. So at 1 MHash/s, you will find a share on average every 72 minutes.
How much will the pool decrease my variance?
If you constitute a significant part of the pool (say, above 1%), your variance will be roughly proportional to your portion of the pool. If, for example, you are 20% of the pool, your variance will be 20% of solo mining variance (a decrease factor of 5 times).
If not, your variance will not depend on the size of yourself or the pool, but rather on the scoring method used. For proportional, the decrease factor is roughly difficulty/ln(difficulty). For the geometric method the decrease factor is roughly (1 + 2*difficulty*c), where c is the score fee parameter used.
Increasing the size of the pool will always decrease the variance, but at some point you will have diminishing marginal utility.