It is similar to the concept of diversification in portfolio management, where holding ten diverse stocks is better than holding one.
If there are a 1000 tickets and you hold one of those tickets - the probability of you winning the lottery is one in a thousand. But if you hold 100 of the tickets - then your chances are 1 in 10 – so you can expect to win the lottery every 10 draws. With your one ticket, you would expect to win every 1000 lottery draws.
However, if you can’t afford 100 tickets you can band together with another 99 individuals to form a syndicate and split the reward every time you win. This means that your cash inflow will be less, but more frequent: the volatility of returns is lower.
Reducing Return Volatility with Mining Pools
The same thing is true for Bitcoin and cryptocurrency mining.
If you have a 1TH machine and the Bitcoin Network total hashpower is 1 PetaHash then you have a 1 in 1000 chance of solving the block every ten minutes. You might not solve it for long periods, but by joining together with other miners in a pool you can form a syndicate and work in concert - and split the returns according to what percentage of the hash power you contribute to the pool. So if you have 10 TH of a 100 TH mining pool and you win the block reward of 12.5 Bitcoins – you would receive 10% or 1.25 BTC.
With mining, it is important to understand the different types of blocks involved, because of the effect it can have on your expected income. This article provides a comprehensive insight into orphan, uncle & genesis blocks.
Mining pools are a good way of smoothing your returns, but there is a cost – usually 1-2% of your winnings. Instead of hooking up your Bitcoin miner that you have bought – you can outsource it further by buying a mining contract that gives you rights to a certain amount of hash power for a certain period of time. This is called cloud mining.
- GAUGECASH Integrates Chainlink Keepers to Decentralize Automation of Novel Liquidity Pool, GAUGEFIELD
- Ariva Digital’s ‘Arivaman’ Gets Set To Embark On Epic Adventure
- WAGMI Games Partners With Cubix To Launch PvP Tower Defense Play-to-Earn Game
- How 5 Popular Smart Contract Platforms Compare to Nexus
- Is the “Decentralization” in the Blockchain Ecosystem Really Decentralized?
- Astra Protocol, a Compliance Layer for DeFi, Could Help US SEC, Other Regulators with Ensuring Consumer Protection for Crypto Investors
- TabTrader's Native TTT Token Launches on Gate.io
- DecimalChain Believes NFTs Could Be the Response the Market Needs
- TaleCraft: A Medieval-Themed Gaming Metaverse
- Polker’s Native Token PKR Listed on Bittrex Exchange!
This website is only provided for your general information and is not intended to be relied upon by you in making any investment decisions. You should always combine multiple sources of information and analysis before making an investment and seek independent expert financial advice.
Where we list or describe different products and services, we try to give you the information you need to help you compare them and choose the right product or service for you. We may also have tips and more information to help you compare providers.
Some providers pay us for advertisements or promotions on our website or in emails we may send you. Any commercial agreement we have in place with a provider does not affect how we describe them or their products and services. Sponsored companies are clearly labelled.