What is cloud mining?

Category：Mining GuideAuthor：BitFuFu2023.08.03

(1) The Role of Mining Pools

As the number of participants in mining increases and the total network hashrate of Bitcoin rises, it becomes increasingly difficult for individual devices or small amounts of hashrate to mine Bitcoin. In this scenario, miners and mining farms combine their hashrate through mining pools. The mining pool is responsible for packaging information, while the participating miners compete for the right to record transactions. Due to the collective hashrate of many miners, the mining pool has a larger share of hashrate, increasing the probability of mining Bitcoin. The Bitcoin rewards generated by mining in the pool are distributed based on each miner's contribution of hashrate. Mining pools ensure more stable income for Bitcoin miners and simplify the mining process.

(2) The Working Mechanism of Mining Pools

Mining pools connect miners using specialized mining protocols, and miners connect to the pool's designated domain and port using mining software running on their machines. Miners maintain a connection to the pool server while mining, synchronizing their work with other miners. Different miners (corresponding to different workers) in the pool receive varying mining tasks and share rewards based on their contributions. The pool pays out earnings to miners' wallet addresses based on their contributions every day. However, due to transaction fees, mining pools set a minimum payout threshold. If the daily payout doesn't reach the pool's minimum, the amount is accumulated until a miner's pending earnings exceed the minimum threshold.

Mining pools divide block difficulty tasks and send miners tasks of varying difficulty levels. After completing calculations, miners submit their work to the pool. Once the pool verifies the submitted work, it accepts and tallies the quantities. When distributing rewards, the pool allocates new coins based on the proportion of work submitted by each miner.

The primary advantage of mining pools is their ability to unite the hashrate of miners and mining farms worldwide, overcoming geographical limitations. The pool handles transaction packaging, while the participating miners compete for transaction verification rights. Although larger pool hashrate theoretically increases the chance of mining a block, various pools and miners still have equal chances of mining blocks based on probabilities.

Mining pools operate as fully automated mining platforms, where miners connect to the pool, provide hashrate, and receive earnings.

(3) Settlement Methods of Mining Pools

Mining pools consolidate the hashrate of individual miners and send mining tasks divided into many small shares. Miners calculate these tasks and submit answers, known as "shares," to the pool. To distribute mining rewards, specific settlement methods are employed. Common modes include PPS, PPLNS, PPS+, FPPS, SOLO, etc. Some of these modes' reward distributions are tied to the pool's luck.

Luck refers to the pool's success in mining blocks. It's calculated as actual blocks mined divided by the theoretical blocks mined, multiplied by 100%. For instance, if Pool A's luck is 200%, it means it mined twice the expected blocks in the past 24 hours.

Main distribution modes:

PPS (Pay Per Share)

In PPS, miners sell their hashrate to the pool for a fixed income. The pool bears the risk, resulting in relatively higher pool fees.

PPLNS (Pay Per Last N Share)

After successfully mining a block, miners' earnings are distributed based on their contributed shares. This mode is closely tied to block successes and can yield high rewards with multiple blocks or zero rewards on unsuccessful days.

PPS+ (Pay Per Share + Pay Per Last N Share)

Combines PPS and PPLNS modes. Block rewards are settled using PPS, while miner fees/transaction fees are settled using PPLNS. In this mode, miners receive additional transaction fee earnings on top of PPS rewards.

FPPS (Full Pay Per Share)

Fully implements the PPS mode for block rewards and past theoretical miner fee/transaction fee earnings over a period, resulting in full PPS settlement.

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