What Is a Mining Pool?
A mining pool is the consolidation of computational power amongst a group of cryptocurrency miners (nodes) who work collectively to solve mathematical problems in order to better their chances of receiving rewards.
In a mining pool, groups of miners have a much higher chance of solving the mathematical puzzle because of their higher hashrate capabilities. Once the mathematical puzzle is solved, the rewards are fairly split amongst the participants according to their contribution.
How Does a Mining Pool Work?
A mining pool greatly benefits smaller miners because it allows them to contribute the same amount of computing power, but with higher odds of receiving a reward. If the mining pool is successful, the rewards are then split amongst the members according to their contribution. The concern is that, as more miners join the network, competition and the mining difficulty increase, reducing the likelihood for reward.
A mining pool also benefits the network, as it lowers the barriers of entry for new miners and increases decentralisation as more miners participate in the validation process. Bitcoin mining, for example, is a Proof of Work (PoW) consensus mechanism that requires miners to compete against each other to solve a mathematical puzzle. The first miner to complete this process is rewarded with newly minted BTC.