Mining pools, explained like you're 5

I run one machine. One Antminer S21 XP, 263 terahash.

If I pointed it at Bitcoin alone and waited to find a block, I'd be waiting about 65 years.

That's why mining pools exist. Everything else is details.

The syndicate#

Twenty people at an office put in five dollars a week. No single ticket is likely to win, but twenty tickets win more often than one, and when one hits everybody gets a cut.

A mining pool is that, with a lot more people. My machine sends its work to Ocean, and so do thousands of others. When any one of us finds a block, the reward splits across everybody who was working.

I don't have to win. I just have to be in the syndicate when somebody does.

What a share is#

My machine guesses billions of numbers a second looking for one small enough to make a block. It basically never finds one.

But it finds almost small enough numbers constantly. Those are shares.

A share is a losing lottery ticket. Worthless by itself, but it proves I was playing and how hard. The pool counts my losing tickets to work out my cut when somebody hits.

That wall of work on your dashboard you never got paid for? You did get paid for it. Just not one at a time.

How the money actually reaches you#

Every pool counts shares. What happens next is where they differ, and it matters more than the fee.

Somebody fronts the money. The organizer pays your cut every Friday whether or not anybody won that week. Smooth, predictable. He's taking real risk to do it, so he charges more. That's FPPS, and it's what most pools run.

Nobody gets paid until somebody wins. Then the pot splits by who put in recently. Cheaper, because nobody is carrying your risk. Lumpier, because your income now depends on when the syndicate hits. That's PPLNS. Ocean's version is called TIDES.

With FPPS you're buying calm. With PPLNS you keep the fee and take the swings yourself.

What that looked like on my machine#

Week four I mined 143,757 sats.

Week five I mined 93,814 across 23 blocks. Down 35%.

That same week hashprice went up and difficulty came down. Both of those are supposed to help me. I earned a third less anyway, because Ocean found fewer blocks.

On FPPS I'd have had a steady week and never known the difference. On TIDES I get the pool's actual luck passed straight through.

One more thing I like about it: nobody holds my money. Ocean pays straight out of the block's own reward transaction. FPPS can't do that. To pay you on schedule regardless of luck, a pool has to sit on a pile of bitcoin, and that pile belongs to somebody.

The part that matters more than any of it#

The pool doesn't only count your work. It also builds the block. It picks which transactions go in it.

Four pools control more than 70% of Bitcoin's hash rate. Foundry sits around 31%, AntPool 18%, ViaBTC 13%, F2Pool 10%.

So the machines are scattered across the world, and the decision about what goes inside a block sits with a handful of companies.

Back to the syndicate. You put in your five dollars. The organizer is the one filling in the numbers on every ticket.

That's the real centralization problem in mining, and it has nothing to do with hash rate. My machine is mine. The question is whether I'm choosing what it works on.

If you're picking one#

Don't shop on fee. Ask two things instead: do I want smooth or cheap, and who is holding my bitcoin between blocks.

I run one machine, so I took the lumpy one. Some weeks that means a 35% drop that had nothing to do with me.

I'd rather have the real number than a smoothed one.