MINING POOLS – How to get a cryptocurrency?
KIEŁTYKA GŁADKOWSKI KG LEGAL constantly supervises and prepares its lawyers for the specialization in which they provide services for foreign clients. In order to systematize the conceptual grid of very specialized fields of IT, telecommunications, biology, medicine and modern finance, KIEŁTYKA GŁADKOWSKI conducts internal consultations to improve the experience of our lawyers specializing in legal assistance for foreign clients from the IT and TECH sector. As a result of such internal research, KIEŁTYKA GŁADKOWSKI creates and publishes texts on topics related to modern legal problems, but also to explain the basic concepts of specialized IT and pharmaceutical fields. In this way, KIEŁTYKA GŁADKOWSKI aims to demonstrate to potential clients within specialized industries that our lawyers are also familiar with specialist terms necessary for a proper understanding of our foreign client’s business and legal needs.
This is one of those texts. We invite you to read it.
How to get a cryptocurrency?
Cryptocurrency is not emitted by some central, national bank as it happens with classical form of money (fiat money). Cryptocurrency is made in a digital sphere and the only way to obtain the currency from the blockchain system is to mine it (similarly and metaphorically to the gold mining). Cryptocurrency mining works similarly to the gold mining. Virtual coins can be discovered digitally using computer programs. The Bitcoin, for instance, has set a limit of total of 21 million bitcoins. Thus the faster you dig bitcoins the more of them you will have (if we consider only mining). All bitcoins are lying within the blockchains system and the role of the computer program and the miners is to dig it from that system, precisely to discover it in that system. Thereby there can be one miner or a clubbed miners’ group who dig together, faster and more effectively and then they divide their profits among each other.
What is a mining pool?
Considering the way of digging bitcoin mentioned above, the idea of mining will be more clear and understandable, because it is based on the simple principle the more the better. Working together group of miners increase their chances of findings block at the group level, compared to the individual level. In a pool miner combines their computational resources with those of the other members. If the mining pool is successful and receives a reward, that reward is divided among participants in the pool.
To draw an analogy, a gold digger having the capacity to dig 100 square meters of land in one day will take 100 days to explore one hectare of land for gold. Combining 100 gold diggers can complete the job in just 1 day. The discovered gold can be split among all 100 diggers evenly, assuming all have put in equal effort to explore their assigned portions of land.[1]
How a mining pool works?
Every miner (a participant in the mining pool group) individually contributes their processing power toward the effort of finding block (processing power of their computer). If miners find a block, the pool is successful in their efforts, miner receives a reward (a divided part of found block). Rewards (a divided form of found cryptocurrency) is divided between the individuals who contributed, according to the proportion of each miner’s processing power of work relative to the entire group (there are 2 kind of shares – accepted and rejected, the reward is granted based on the accepted shares.
What are the advantages of mining pool?
- Mining pools offer individuals a more scalable method of participation in the crypto mining.
- In the pool by combining computing power, miners can achieve higher success.
- The success in mining pool does not require acquiring more mining rings or paying more for electricity to achieve higher success rate.
- A large mining pool has a potential to centralize the mining sector.
What are the disadvantages of mining pool?
- Individual miner gives up some of their autonomy to the group in the mining process.
- The group dictates the mining process approach.
- The potential reward is necessarily divided.
- Small number of mining pools dominate the cryptocurrency (especially Bitcoin) mining process (an advantage of centralization).
What are the examples of mining pools?
As we mentioned above there can be a pool consisting of 2 miners or it can be a huge company with their own mining process sector. Thus the examples encompasses such big commercial entities as BTC.com, AntPool. Poolin, F2Pool and anyone with professional computer.
What are other detailed information?
Risk type: Usually low.
Possible exploit: Most are one-way but some accept deposits – and it could enable laundering (but now in force there are legal provisions regulating the anti- money laundering crime in the cryptocurrencies sector, e.g. European Union’s regulations).
Emerging trends: Large corporation or mining pools dominate mining.
To see the biggest mining pools: https://www.buybitcoinworldwide.com/mining/pools/
Sources:
https://www.investopedia.com/terms/m/mining-pool.asp
https://www.investopedia.com/tech/how-do-mining-pools-work/
https://www.buybitcoinworldwide.com/mining/pools/
[1] https://www.investopedia.com/tech/how-do-mining-pools-work/, (access date: 24th August, 2021).
