Mining pools: how miners share block rewards

In a proof-of-work network such as Bitcoin, a miner earns a reward only when it finds a block. For a single machine that might take years. Mining pools solve this by combining many miners into one team.

How a pool works

1. Miners connect their hardware to a pool server.
2. The pool gives each miner work: a block template to hash.
3. Miners send back shares — solutions that meet an easier target than the real network target. Shares prove that a miner is doing real work.
4. When one of the miners finds a solution that also meets the network target, the pool's block is accepted and the reward goes to the pool.
5. The pool distributes the reward among miners in proportion to their shares, minus a pool fee.

Payout methods

Pools use different formulas. Some pay for every share at a fixed rate and take the risk of bad luck themselves; others pay only when the pool finds blocks, so income varies more. The method affects how steady a miner's income is, not the total work done.

Why it matters for the network

Pools make mining income predictable, which helps small miners stay in the network. But if a few pools control a large share of the hash rate, they have a lot of influence over which transactions enter blocks. Individual miners can switch pools, and pool concentration is watched closely by the community.

Mining beyond Bitcoin

Other proof-of-work coins, such as Litecoin and Dogecoin, also use pools. Because both use the Scrypt algorithm, they are often merge-mined together: the same work can secure both networks.

Proof of stake

Proof-of-stake networks have no mining. A similar idea exists there: holders delegate to validators or join staking pools to receive rewards more regularly. See What is staking?.