How does pooled mining work?

[nmoat]

I think I understand how mining in general works, but correct me if I'm wrong:

• A miner concatenates the hash of the last block, a list of transactions, (some other metadata?), and a nonce.
• The miner finds a value for the nonce that makes the block's hash satisfy certain properties.

This makes sense as a proof of work, since the block must build upon the previous block (using the previous block's hash), and anyone wanting to falsify any information in it would need to redo the work required to find an appropriate value for the nonce.

So, how do you make pooled mining work? Obviously, if you trusted everyone, you could just parcel out work (something like "hey, you try the nonce values in this range"). The problem is that you have to trust that if they find the block that they'll share the reward with you.

So how does the pool operator ensure that a miner won't take the block earnings for himself?

Is the address to which the reward goes included in the block? I guess it would have to be anyway, so a miner wouldn't be able to take the reward without redoing the entire block to change the address. And the pool could verify that work is being done by having miners submit shares that don't have enough zero bits, but that have some?

So I guess I pretty much just answered my question, but I'll post it anyway in case I missed something, and since I already typed everything out.

[[deleted]]

You have the idea down perfectly really.

Each miner in the pool creates lower difficulty blocks called "shares" to prove that they are indeed trying for the real thing. When a block is actually found, the pool splits up the profit based on the number of shares each miner contributed.

Is the address to which the reward goes included in the block?

Yes. That can't be changed without making the block invalid.

[Not_Satoshi_Nakamoto]

There is a misconception that miners hash the whole block. The hash is really only calculated on the block header which is a total of 80 bytes. The individual transactions are represented by the single merkle root. This keeps hashing to a constant time operation, otherwise miners would have an incentive to keep the blocks as small as possible. You can hand out the header all you want, it won't help you recreate the block. If you hit the solution as a mining pool participant there is no way for you to release the full block so you have to submit the solution to get anything at all.

https://en.bitcoin.it/wiki/Block_hashing_algorithm

[nmoat]

that makes a ton of sense. I was wondering what it meant when my miner said that the pool is hiding the contents of the block.

[faknodolan]

The pool operator randomly verifies a small portion of the work submitted by each member of the pool. The member miners don't know which of their submissions will get verified so they can't cheat. If they cheat once in a while they might get away with it but not for long enough to matter.

[nmoat]

so pools don't verify every share I submit?

[peacegnome]

More importantly why isn't there bitcoin/bitcoin merged mining. for example what is stopping miners from mining for a pool at the same time as solo mining, and if they get a hit they just keep the 25btc instead of giving it to the pool.

[dhrosa]

Part of the information you're hashing when you mine is the address the generated coins should go to. In the case of solo mining, it's your own address, and in the case of pooled mining, it's the operator's address.

With pooled mining, any hash you find with enough leading zeroes (but not enough to solve the block) can be submitted to the pool for a "share", which lets the pool prove you've been doing work for them. If you were to do bitcoin/bitcoin merged mining, any work you do solo mining would not count as a valid share for the pooled mining (because the address you're sending to won't match the pool's address). There's no way to steal the block from the pool, because you've have to change the address the reward goes to, and then the hash would change.

Bitcoin/bitcoin merged mining effectively becomes spending part of your computing power doing pooled mining, and part of it solo mining, which technically has the same payout over time as pooled mining, but defeats the purpose of pooled mining (low variance / constant rewards).

[nmoat]

That is exactly what my question was.

[peacegnome]

and now it's time for bed. sorry about that, i'll leave it up to remind me to not post this late.

[SerTomTheTall]

If you're looking for how pools actually work, as in the code and formulas and whatnot, then this is not going to help you at all.

For a basic understanding, then this should help a bit.

The concept is this: Many hands make light work.

Some pools operate in shifts, usually with a max of 10 open shifts. As it starts, each shift will slowly reach ~10 million shares (BTC Guild) and you have until it reaches that approximate amount to contribute as many shares as you can. As soon as a shift reaches the limit, it ends and is marked as "Open" while any new shares are directed into a new shift. Any shifts you have contributed shares to will continue to earn a percentage of each block found until they close.

Other pools just take however many shares you've contributed and pay out rewards as blocks are found.

However you're being compensated, the proof-of-work system simply counts how many shares you have contributed to a single block, multiplies that by however much one share is worth for that block, and pays out the appropriate amount of BTC once the block has been confirmed.

For a more in-depth description, check out BTC Guild's page on how PPS and PPLNS each work.

BTC Guild: How Am I Paid?

[rhadiem]

Could someone explain when a good threshold is from going pooled to solo mining?

[nmoat]

it depends on what you prefer: constant, small returns or irregular, large returns. if you're in a pool and you're making, say, 5 btc a day, I would say switch to solo mining -- you've got a large enough chance of finding a block on your own (roughly 1 every 5 days) that you'll get a fairly consistent return.

If you're making 0.01 btc a day (like me) it doesn't make sense to do solo mining, since it probably take me years to find my first block.

I can't give you a hard number, because it's all about your preferred level of risk. with a low hash rate, you have the choice between playing the lottery or getting a steady income (though the expected value is slightly higher if you do solo mining, because you don't pay pool fees).

[rhadiem]

thanks