For those wondering about the purpose of a mining pool, here’s the essence: in Proof-of-Work (PoW) networks, miners unite their computing power to enhance the chances of finding blocks and sharing the rewards. Unlike solo mining, which can be highly unpredictable, a pool provides a more stable income by compensating members for their contributed work (known as 'shares'), minus a small fee. Pools don’t alter the consensus - PoW still secures the chain - they simply mitigate the risk for individual miners, making the process more predictable and rewarding.
Why mining pools exist
Proof-of-Work networks set a difficulty target that makes block discovery rare for small miners. This rarity leads to high income variance in solo mining: instead of waiting months (or years) to hit a block alone, you could experience significant income fluctuations. Pools reduce this variance: you earn frequent, smaller payouts based on your share of the group’s total hashrate, which is a more predictable income stream.
Note: Ethereum moved to Proof-of-Stake in 2022, so ETH isn’t mined anymore. Mining pools today focus on PoW assets like Bitcoin and other mineable coins.
How a mining pool works
You do the work: Your miner connects to a pool and submits shares - easy proofs that show you’re hashing.
Pool hits a block: The combined hashrate occasionally meets the real network target; the pool gets the block reward + fees.
You get paid: Rewards are split by the pool’s payout plan - either steady per-share payments, a plan that favors your most recent work, or one that also shares transaction fees.
Fees, trust, and decentralization
Fees: Typical pool fees range from ~0% to 3% (sometimes more for Pay-Per-Share).
Trust is a cornerstone of the mining pool ecosystem. Most pools receive the block reward and then distribute it among miners, making reputation and on-time payouts matter.
Centralization risk: If one pool accumulates too much hashrate, it can threaten network security. Many miners deliberately spread across multiple pools to avoid concentration.
Beyond PoW: staking, validators, and other ways to earn
In Proof-of-Stake, you help secure a network by locking tokens and earn rewards in return. You can run a validator with your stake and high uptime, or delegate to an existing validator. See Ethereum for a mainstream example. Many networks and apps also offer liquid staking tokens that represent your staked position and can be used in DeFi, but they add smart contract and depeg risk. Cardano makes participation simple through native stake pools, so most users delegate rather than run their validator.
Some ecosystems reward different resources. Solana combines Proof of History with PoS, where SOL holders stake to validators on a high-throughput chain. Storage and space-time networks pay for capacity, like Filecoin for storage. Wireless networks pay for coverage and data transfer, such as Helium. On several Ethereum Layer 2s, sequencers order transactions and collect fees, often under protocol governance, with work underway to broaden participation.
Common questions
How do I choose a pool? Pick one with transparent stats on hashrate, luck, orphan rate, and on-time payouts, reasonable fees, nearby servers, and a payout plan that fits your risk tolerance. How do payout plans affect income? Steady per-share plans pay a predictable rate per share (usually with a higher fee), recent-work plans pay more when the pool is lucky (lower fee but bumpier income), and some plans also share transaction fees. What hardware and profits should I expect? For Bitcoin, you need an ASIC; estimate daily profit by entering your machine’s hashrate, power use, and your electricity price into a mining calculator, then subtract pool fees and consider payout frequency.