#mining reward

Mining Pools Rewards Explained

The Bitcoin (BTC) boom in 2017 revealed to the world the new ‘gold rush’ and made thousands of people understand that cryptocurrency would be the next significant step in the field of finance. Mining farms have suddenly created value while a miner profession became trendy. 

Back in 2020, cryptocurrency mining is still profitable. Knowing your ‘mining rights’ might bring even more profit than…

Introduction

We have already explained the process of crypto mining and described what tasks full nodes perform. Now it’s time to talk about a mining reward. The mining process happens all the time. Many full nodes are searching for hash function arguments which allow them to close a block. Once the block is closed, blockchain is updated with a new transaction list and a block miner is rewarded. This is the only way for a miner to receive a reward. Each node is interested in fair rewards assessment. That is why the verification of a received block correctness is not rewarded. Transaction retransmission gives no direct benefit either.

Mining efficiency increase

Looking at the reward system, users sooner or later come to the conclusion that the probability to find a new block — and, thus, to gain a reward — heavily depends on hardware performance. Indeed, the greater the processing frequency is, the faster a hash calculation will be executed and the greater the chance is that a node will find a victorious option and receive the reward. Miners started looking for ways to increase the chance of finding new blocks, and as a result of this race, mining itself has passed a log way with several key transformations.

Rewarded activities

Initially mining was performed with the help of standard microprocessor resources. Since the performance of central processing units (CPU) was comparatively low, miners switched to the graphic processing units (GPU). Later on, programmable logic devices (PLD) entered the stage. So much interest in mining has not gone unnoticed by hardware manufacturers. The first Application-Specific Integrated Circuits (ASIC) were released in 2013. It is noteworthy that the evolution of mining equipment has evolved from universal flexible logic devices to specific hardwired logic devices.

Mining hardware evolution

 From solo mining to farms, from farms to mining pools

Further hardware development was rather complicated. Principal withdrawal from programmable side down to microcircuitry took place. At some point, performance increase became possible only with the extensive development, which led to the creation of so-called mining farms. The main idea of such facilities is simple — many computing devices were united, like a server station. Their only task was to calculate hashes. Further mining evolution does not seem to be caused by the desire for equal reward distribution. It was more about a reliable profit, even if its amount might be lower. Miners started uniting in groups called “pools” controlled by centralized organizations.

Simplified mining rig scheme

Rules in mining pools are simple. A pool management provides all its participants with blocks that require hash calculations. Each pool member mines on an equal basis with others. If one receives the hash of a closed block, the reward is distributed equally among all pool members. In response, the miner receives money every time other members close their blocks. You can find more detailed information about mining pool reward in our earlier articles (“Methods Of Reward Distribution In Crypto Mining Pools” and “Complex Methods Of Reward Distribution In Crypto Mining Pools”). There are many different approaches to the pool mining reward distribution. In some cases, pool managers provide autonomous mining without constant information exchange. Still, a reward is received by all participants from a single source. Ironically, the attempt to escape from decentralization to distributed relations collapsed with a desire to get a guaranteed profit and led to consolidation.

Afterword

The peculiarities of mining reward distribution is an interesting issue as the process is constantly evolving. Apart from Proof-of-Work mining, there are many other methods of reward distribution. Moreover, some of PoW implementations are claimed to be ASIC-proof. It means that performance does not play a key role in the probability of success.