Bitcoin’s rise to over $10,000 per coin has gotten some of the “get-rich-quick” schemers that were buzzing during bitcoin’s 2017 price spike buzzing again. With the coin peaking at nearly $14,000 recently, interest in altcoin mining has skyrocketed, with bitcoin’s mining difficulty reaching a record high on June 27th.
Mining difficulty is the measurement of how difficult it currently is to correctly guess the target for the next block. To be awarded the block reward, a miner must guess a block heading that is equal to or less than the target. As targets get lower, they become harder to hit, which is complicated by the fact that the target is a large 256-bit number.
As more miners actively look for a block, the odds of winning the block decrease, like a lottery. As the odds of winning a lottery’s jackpot is lowest when the jackpot is at its highest, so too are the odds of a single miner winning a block.
This does not mean that mining today is hopeless. Just as lottery pools can increase your odds of winning the lottery, mining pools can improve your odds of finding a block. A collective of miners, mining pools combine the collective hashing power of all the members’ rigs together to improve the group’s collective odds, while splitting the block rewards. It is typically thought that for anything except a newly minted coin, it is virtually impossible to find a block without being part of a pool.
However, all pools are not made equally. Here are seven questions you should ask when choosing a mining pool.
What Coins Does the Pool Offer and Is There Room for Expansion?
The most obvious question you should ask is what tokens and coins the pool supports. A pool that focuses only on one coin, for example, will have better mining hash rates but will offer fewer options for miners seeking to mine multiple coins. This decision is, ultimately, dependent on the miner’s mining philosophy and strategy.
What Is the Reputation of the Pool?
When you look at the reviews of a business online, you will find that every business will have at least one bad review. Mining pools are no different. Some people may complain about disagreeing with the payment schedule or about policy changes that did not go their way. However, if you find more bad reviews about a pool than good reviews, this is generally an indication to stay away.
How Profitable Is It and How Does It Distribute Profits?
One of the factors you should consider with a pool is its profitability. If the information is available, look back at the last year and compare it to price data and the blockchain information for the coin you are mining. Have there been periods of no block activity? Does profit distribution match the blocks the pool is reporting? Is the pool reporting all blocks discovered to its members?
Once you know that the pool is “on the level,” you need to ask how exactly the pool shares profits. What is the pool’s share of the profit? Are shares evenly paid? How are shares determined? How is unpaid backpay handled? Understanding this can save headaches later on.
How Transparent Is Its Decision Making?
A pool should be transparent about how changes in policies, such as an increase in the pool’s fees or share, are handled. You should avoid pools that do not discuss policy changes with members.
How Clear Is the Pool’s Onboarding and Stats Dashboard?
Joining a pool requires a fair amount of technical know-how. However, it should be limited to setting a few settings on your mining software. If onboarding onto a pool requires writing and installing scripts or significantly reconfiguring the way your rig works, then you should strongly consider whether this is the right pool for you. Instructions for onboarding should be prominently posted on the pool’s portal.
Also, on the portal should be up-to-date mining data for you and the pool. You should easily be able to see your status and any profits to date. Pools with less-than-transparent reporting mechanisms may be opaque for questionable reasons or may not be paying attention to important details in their operation.
Does the Pool Offer Member Support?
Sometimes, there are issues with mining that cannot be easily resolved. In these cases, it is important that a pool has some means for its members to get answers. This may be a frequently asked question section, a member forum, or a dedicated customer service line. Regardless of how the pool chooses to address member support, it should be prominently promoted and comprehensive.
How Large Is the Pool?
This question is controversial. One could argue that there is no difference between a large pool and a small pool. The logic behind this suggests that while a small pool would get fewer blocks, members would get a larger share.
To a certain extent, this is true. However, the share size is only one consideration. Another consideration is the consistency of payout. A smaller pool would get blocks more slowly, meaning that there will be periods of no profits. For tokens with wildly fluctuating prices, this can be problematic, as the pool may hit a block when the price is low. Larger pools avoid this by hitting more blocks regularly.
Another consideration is reputation. A large pool is logically more trustworthy, as more people use it. Smaller pools may need more careful vetting.
Finally, large pools present an existential threat to their coins. Should a pool ever reach 51 percent of the coin’s global hash rate, it could theoretically take over the coin with a 51 Percent Attack.
As is true for anything concerning altcoins, careful research is needed to make an informed choice. Mining with a pool is a great way to improve your profitability, but it is essential that you understand who you are doing business with and how they conduct themselves in that business.
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