Solo mining – i.e. attempting to find new Bitcoin blocks using GPUs or ASICs that you control – is no longer profitable. Even with multiple ASICs linked together, you could toil away for weeks, months or longer and fail to discover a new block. In the meantime, you would be running up an expensive electricity bill, since these devices are power-hungry.
To solve this problem, and make mining more accessible to as many people as possible, bitcoiners have created mining pools. This entails a group of miners combining their hashpower (their collective computer processing power) to search for a new block together.
If any miner in the pool succeeds in this quest, the coinbase reward will be shared with all pool members proportionately to their hashpower.
For example, if you provide 5% of the hash power to the pool and the pool discovers a new block, you will receive 5% of the reward which (excluding pool fees) would amount to 0.3125 BTC.
It sounds like easy money, but if it was that easy, everyone would be doing it! The truth is that it is extremely hard to profit from cryptocurrency mining.
Once you factor in your hardware and electricity costs, any rewards you may earn from the pool can be consumed by overheads. That’s why most of the world’s bitcoin mining centres are situated close to renewable energy sources in regions where electricity is cheap and plentiful.
Unless you happen to own your own hydro electric dam or have a bank of solar panels, you will struggle to profitably mine bitcoin. That’s not to say it can’t be done by drawing power from the national grid, but you’ll certainly need to optimise your setup to ensure your ASICs are running as efficiently as possible.
Professional miners overclock their machines, to run them at performance levels above the manufacturer’s recommended settings. This should only be attempted by experienced miners, since care must be taken not to overheat the miners in the process, as solving one problem then creates another – the need to cool your mining operation, using up even more energy.
If you are determined to mine cryptocurrency, you’ll need to find the right location in which to set up a rig (cool, well vented, and well insulated or isolated to prevent noise complaints), and choose the right ASIC for your needs and budget. With that done, and your mining gear on its way, it’ll be time to consider which mining pool to join.
Choosing a bitcoin mining pool
Choosing a mining pool comes down to some simple logic: the larger the size of the pool, in terms of hashpower, the more regularly they’ll find blocks. This will ensure a consistent stream of revenue.
However, due to the small portion of the hashpower you will supply to the pool, your share of the coinbase rewards will be miniscule. Joining a smaller pool will give you a larger share of the rewards, but payouts will be less frequent because the pool will discover less blocks.
There are also some more technical considerations that will guide your decision. If you are taking the DIY approach will require a fast internet connection with low latency in pinging the pool to share data.
Any delay in receiving data can waste precious time in searching for a solution to the next block. You ideally want a ping of under 200ms and as close to zero as possible.
Different pools charge different fees, so this will also need to be taken into account. You’ll also want to check the payout frequency; some pools will only pay out on scheduled dates, or once a minimum amount of BTC has been accrued in your wallet.
Pools that custody the miners’ rewards until they are distributed also incur a risk, since you are relying on them not to get hacked or hold onto funds. You may prefer to pick a pool that pays out directly into your own wallet.
Your last consideration should be the opportunity cost of investing in a mining pool. Can you get a similar or better rate of return on your investment elsewhere, when adjusted for the risk involved?
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