Is a Decentralized Bitcoin Mining Pool the Next Big Thing: What you need to know

October 12, 2021 - Expert Commentary, How-To Articles

Decentralized Mining Pool

The crypto era is a gift that keeps giving.

Ideas come from all over. Some fizzle out while others endure. Regardless, the presence of differing opinions and directional beliefs is what makes this community all the more endearing. Bitcoin mining is the backbone of this asset. 

Not all mining models are the same. Some people mine alone, others mine in pools and share the profits. It is mostly in the format of a centralized miner who calls all the shots and distributes the dividends among network participants.

A decentralized mining pool proposal is getting traction, and adding the word decentralized before the word mining will garner interest. After all, decentralization is the defining concept of Bitcoin itself. However, the idea is not merely for the show.

What Is a Decentralized Mining Pool?

A decentralized mining pool works by creating a peer-to-peer network of miner nodes. 

Instead of the mining pool vesting power in a centralized entity, there is participation in the network.  It aims to create an equitable system that prevents acts like theft or concealment of rewards by pool operators. Participants in centralized mining are often no more than passive participants who have to go by whatever the pool operators decide.

Decentralized pools work by creating a new blockchain in which difficulty adjusts to create a block every thirty seconds. These blocks a decentralized pool chain called the share chain. Notably, they are the same blocks that would get into the Bitcoin blockchain, with a lower difficulty threshold. 

Whenever one miner node broadcasts that it has found a new share, which is a new block in the share chain, the information goes to other nodes, which verify that the block contains payouts for all previous miners who found a share that made it to the share chain.  This process goes on until a node finds a block with difficulty meeting the Bitcoin network’s difficulty target.

That node announces the block, and miners who submit shares for the successful block earn from the generation transaction, proportional to the number of shares they find in the last while. 

Miners configure their machines to connect to the decentralized pool as nodes to run locally. They must run a full Bitcoin node to validate transactions and the Bitcoin blockchain independently.

Decentralized Mining Pools Are a Popular Concept 

Bitcoin mining plays a vital security function in the Proof-of-Work consensus algorithm system

In the early days of Bitcoin it was solo, with the miners being able to mine solo. 

However, mining had got more competitive by 2013 with the invention of ASIC Rigs. There came a new class of institutionalized mining pools. Even though they did not coordinate, the largest mining pools controlled more than half the network hash rate.

This could be a theoretical threat to decentralization. It is advantageous to have as many people as possible and as spread out as possible to mine Bitcoin. These large pools lacked transparency because participants don’t have as big a say when mining by themselves.

Decentralized mining pools imitate the workings of the Bitcoin blockchain to great effect. This automatic process ensures that the distribution of mining rewards is more equitable and transparent. Centralized mining pools can be quite profitable, but it is not easy to know if you are getting all that your investment earns. 

Some Bitcoin enthusiasts see decentralized pools as the future for Bitcoin decentralization. These pools are not as resourced as centralized pools. Centralized exchanges also dominate the exchange market, but decentralized ones like Uniswap are fast catching up.

Accordingly, some Bitcoin supporters donate to decentralized pools like P2Pool. They view these pools as a necessary addition to further entrench decentralization in this space. The average returns from this setup make it a great model that many want to see grow. Decentralized pools are still coming up, and their success depends on the power of combined resources put to good use.

A Case Study:  Braidpool

Braidpool is a decentralized Bitcoin mining pool seeking to make a difference in the mining scene. 

This pool provides low variance for independent miners with constant block space requirements for payouts. 

Its core aims are: 

  • Reward miners for all their PoW shares.
  • Scale to tens of thousands of miners.
  • Provide infrastructure for building financial tools to help miners manage risk.

These targets are in line with the general themes of peer-to-peer mining pools. The goal of rewarding miners for all their shares is possible in this format because it depends on blockchain automation rather than the benevolence of a powerful centralized entity. 

Braidpool relies on peer-to-peer communication between miners. This communication creates a network effect that is crucial in tracking PoW shares. That is the essence of decentralized mining. Braidpool has a slightly different codebase to other decentralized mining pools like the P2P pool.  This allows the use of a separate network to execute its stated goals. 

This pool aims to give miners a genuine reason to mine here. In existing pools, some do censor transactions and have opaque accounting limits. These features limit their ability to build financial tools that can help miners manage their business risks. Therefore, centralized mining pools have inherent limitations that prevent them from attaining the transparency that miners require.

Scaling their operation will be the next arduous task. Say what you will about decentralized exchanges and mining pools, but they are incredibly successful. Some miners will be concerned about the efficiency of decentralized mining pools. This pool will have a special place in the history of Bitcoin mining if it can create a niche for itself in the Bitcoin mining high table.

VBit Mining: Confident Bitcoin Mining with Professionals

For the record, VBit Mining is a professional Bitcoin mining host with a direct line to Bitmain. 

We are obligated to study developments in the Bitcoin mining scene, and the analysis of decentralized mining pools is not to be taken as a form of affiliation. 

We offer equipment reselling services to those seeking to get started. This service is decisive because the first step to mining Bitcoin is sourcing equipment successfully. Our direct line to Bitmain, the world’s best equipment manufacturer, is crucial in sourcing the latest and best equipment. 

Additionally, VBit Mining offers equipment hosting services. Bitcoin mining is an electricity-intensive affair and can leave you with piling bills very quickly. The hosting facilities provide cheap renewable energy and are located in naturally cool areas to reduce the amount of electricity that goes into cooling Bitcoin. 

These variables are decisive in getting any Bitcoin mining enterprise on the viable side. Therefore, if you can’t build the infrastructure necessary to take part in decentralized mining pools, hosted Bitcoin mining provides a softer landing. Mining requires consistency and constant improvements to remain viable. As a professional and experienced mining outfit, VBit Mining is committed to keeping that tempo. Visit the VBit Mining Shop page to learn more about Bitcoin mining!

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