Bitcoin’s underlying computer network is the largest, most sophisticated computerized system in the world with working units in almost every part of the globe, from China to Kazakhstan to Venezuela to the U.S. And with recent all-time highs in hash rate and difficulty level, the Bitcoin mining industry is more competitive than ever. Meanwhile, there are questions about whether efforts toward its decentralization are enough to combat China’s dominance in the sector.An important element to Bitcoin mining’s overall growth as well as its decentralization is the network of mining pools that bring miners together to pool their resources to more strategically wrestle block subsidies from an increasingly competitive system.The Role Of Mining PoolsBitcoin mining is becoming increasingly competitive, with higher-than-ever difficulty rates, producing higher-than-ever hash rates.
But even with the best available equipment, miners today need a sophisticated strategy to be successful; as well as a bit of old fashioned luck, according to Ryan Porter, head of business development for BitOoda.“There is the concept of ‘luck’ that you need to factor into mining,” Porter told Bitcoin Magazine. “If you contribute 1 percent hash rate to the network, you will generate 1 percent of the blocks over time, but in the short run your rewards can be very inconsistent depending on how lucky you are. For example, one week you might win 5 percent of blocks, then you may not win any blocks for two weeks.”And this inherent felicity is what motivates many miners to pool their hash power together.“The key role a mining pool plays is smoothing out the revenue stream for miners,” Porter added. “A lot of the mining pools will take on the risk of ‘luck’ and will pay the miners based on the expected bitcoin production of their hash power, in exchange for a fee from the block rewards the pool wins.”John Lee Quigley, head of research for bitcoin mining media company HASHR8, which is dedicated to Bitcoin decentralization and security, is seeing things getting tougher for miners — which could also be motivating the growth of mining pools.“Many large-scale miners operate just above the margin and they can’t afford to take on the variance of block-finding by themselves,” he said. “They have expenses to meet and they need a regular payout. Mining pools take on the variance for them. They play an essential role in the industry.”Not only do mining pools provide equipment and advice, they are better able to operate a sophisticated mining strategy using algorithms like profit switching to maximize every profit angle.To read more about mining pools, visit
Bitcoin Magazine’s guide
.Most Mining Pools Are In ChinaWith the notable exception of the first ever created pool, SlushPool (headquartered in Prague), all large mining pools are based in China, reflecting the current concentration of global hash rate (with anywhere from 50 to 65 percent of all the world’s hash rate concentrated in the country, depending on source).