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Mining Pools vs Solo Mining
All too often people get in to mining and jump straight in to mining the coins solo. Some do this because they do not know better, and others do it because they think that they will earn more. Through this article I want to look at the difference between the two mining methods, and why in most cases solo mining is worse than joining up with a pool. I will also be looking at how you can determine which method is going to be the most profitable with your mining rigs and the coins you are going after.
There are essentially three different mining methods: a normal pool, p2pool and solo. Each of these is different and they each have their own pros and cons, so we will be looking at each separately to help better understand how they all work. At the end, we will then look at how to determine which method will be the most profitable for you.
Solo mining is when you use one or more of your rigs to search for blocks. In this case you are getting paid only when you personally find a block, but you get the full amount of it (plus any transaction fees if they are present) upon finding one. This leads a lot of people to feel that it is the best method because, for example, one block on Bitcoin's network will net you 50 BTC (or around $5,000 right now). That is a pretty large amount of money, and the same goes for other coins; your earnings per single block will be higher.
The thing to keep in mind here is that if you are not finding any blocks, you are burning electricity and adding on to the wear and tear of your systems but are not getting any benefit out of it. Unless you are finding enough blocks to at least cover your own expenses, you will want to avoid this method at all costs. For the most part, this is most helpful when a coin has just been released and you have rigs that are capable of throwing at least a decent amount of hash rate (say 2 MH/s or so) at it. During this beginning period, blocks will be found so often that you can usually benefit off of it.
P2pool is technically a mining pool, but one that acts like solo mining in terms of the end user's view. You enter the pool using your wallet's address, rather than signing up to get an account, and the payments are automatically paid out once blocks are found by anyone on the pool. This cuts down on the middle man and also reduces the time it takes to get paid, although it does bring up another issue: you will get a ton of payments out of it. With each new payment you get, you are potentially adding some bytes (around 230) to your transaction size for when you send coins to someone. As this number grows, the cost of sending the coins also grows along with it.
This has the benefit, though, of keeping you from having to trust a site's wallet not to be hacked and the owner not taking off with all of the funds. Really, whether or not you use the p2pool platform will depend on how you feel about trusting others. If you do not trust others, use p2pool instead. If you do, a normal pool may be the better option.
Normal mining pools collect all of the hashing from miners and basically run them off one account. As a block is found, the pool's wallet is the one who gets the payment, and then the payments are separated in to each miner's site account based on their personal contribution towards finding the block. If someone had half of the site's shares, for example, they would usually get half of the reward once a block is found, regardless as to who actually found it.
This has the benefit of allowing you to bank off everyone else's work, and is an excellent way to compensate for lower hash rates. If you get any shares during a round, you will at least get something. If you have no shares, however, you will not gain any benefits.
Depending on the mining pool, there are different types of reward types given: PPS, PPLNS and Proportional are the most common. Each of these works differently from the rest, although they all theoretically give about the same rewards if you are loyal to a specific pool and do not do a lot of pool hopping. The way they work is as follows:
- PPS (Pay Per Share): you get paid a guaranteed amount for every share you submit. Pools that use this method often employ custom pool difficulties as well, rather than allowing for variable. This makes the calculations a lot easier and ensures every miner is treated fairly
- PPLNS (Pay Per Last Number of Shares): you get paid based on the last x number of shares after a block is found. For example, if it is set to pay 5,000 shares and you had 2,500 of the last 5,000, you would get half of the block's payment
- Proportional: you get paid based on your proportion of shares since the last block. This is a lot like PPLNS but instead of only counting n shares, it counts every share between each block and then calculates the payments based on each person's proportional amount
In most cases, I have found these to all lead to about the same rewards. Generally, the only time there is a difference is with PPS, and that is because you get paid the same amount per share, regardless of the pool's luck (how long it is taking to find blocks). So if the pool has great luck for the period of time you will earn less than having been on PPLNS, and if has less luck you will earn more. PPLNS and proportional should be about equal to PPS over the long run though.
Something else you need to take in to consideration are the fees associated with the pool. Unlike p2pool pools, these others usually have much larger fees. Some pools require 2-4% guaranteed and then also try to get you to donate more than that on your own. With PPS pools, the donation percent can be even higher, sometimes at 6-8%. What I usually do is make my pool decision based on their requires donations. Some are just a bit ridiculous, and I will go out of my way to avoid them. Around a percent, though, I find to be a good compromise since that helps pay for the server, and without it there would be no pool!
Which Mining Method is the Best?
This question highly depends on a few different factors: how much hash rate you have relative to the network's, what the coin's block reward is and what the coin's difficulty level is. In nearly every case, however, you will be earning about the same, or more if you are on a pool that has a decent amount of the network's hash rate. If they are at at least 25%, they should be pulling in a decent number of the blocks. This means that while you do not get massive payments off each block found, you are not only relying on your own hash rate by going with solo mining. But what type of pool do you want?
P2pool, while it definitely has its benefits in that you are paid instantly, is a little less viable for some of us due to the smaller payouts. With normal pools, you can save up as many coins as you want, even collecting them over days or weeks before accepting a payout. This lets you cut down on the number of incoming transactions you have, which in turn cuts down on the cost of sending coins to someone else as well. This simply can not be done with p2pool (there are some methods to slow down your share rate, but generally speaking you will always still have somewhat small payments coming in). With the normal pools you can avoid this altogether, and it is hard to justify not doing so.
If you are unsure what type of pool you want to go for, the best thing to do is take two similar rigs (if you have them) and point them to separate pools for the same amount of time. After this, look at how much each of them has earned. Sometimes you will find that your solo miner has earned more than the pool, sometimes the opposite, and sometimes p2pool can pay out more total than either of the other two. Each coin will react differently with this. One thing to keep in mind, however, is that there are still a couple of factors that will often change:
- Pool luck
- Solo mining luck
When you are mining for a block, the chance of hitting one is random. You could be running a 1 MH/s rig on Bitcoins (even now) and hit every single block out of sheer luck. You could also have 95% of the network and never hit a single block. It is all completely random. This is important to realize because you will often have different results even mining the same pools. One will undoubtedly find more blocks than the other, and the number of shares needed for each block will be different for each one. Because of this, it can be very hard to get a truly accurate representation as to what you will earn by different methods. I personally just stick with PPLNS pools with low donation requirements and leave it at that. Based on what I have seen so far, it has left me about on par with those who use other methods, without the headaches of having to keep looking for new pools or experiment.
Donations and Fees
Many pools require you to donate a certain percentage of your earnings to the pool's fund to help pay for the server and upkeep. Along with this, some pools have fees for withdrawing. The different fees I have seen so far (some pools have multiple, so be aware of them!) are:
- Pool donations (forced or voluntary)
- User donations (voluntary)
- Withdrawal fees (automatic or manual payments)
If you are not careful when you choose a pool, you can really get screwed over with the fees. Some of them require forced pool donations and withdrawal fees on both manual and automatic payments. In these cases, you may want to either avoid them or ensure that you are not setting any user donations (which are usually set up by default, so be sure to set them to 0). When it comes to the withdrawal fees on manual payments I can understand that; the pool will usually have to pay a small fee on those so the fee that is paid by us helps compensate them for that. With automatic withdrawals, though, their fees are almost nothing, or sometimes even are nothing. In those cases there should be no fee given out, and I will not support a pool that requires that.
Getting started with mining various crypto currencies can be a confusing task at first. You have the choice between mining on your own or with a pool, and even with the pools there are multiple different choices. I do not believe that any of these choices are really wrong, they just depend on what you are going for. If you want a steady earning potential, go with a normal mining pool. If you want to be paid constantly after each block is found by the pool, hit up a p2pool server. If you want the chance to get massive payouts but that may or may not ever come, go with solo mining. Experiment with each of them to see what works best for your own setup and the coins you are going for, and use that to help judge which method you should be going with. Now that you understand how each of these works and their pros and cons, you are well on your way to earning some crypto coins!