Chapter 6. Solo Versus Pool Mining
In this chapter, we will compare solo mining and pool mining. In the early days of Bitcoin mining, all mining was done solo; it was only later that mining pools emerged where miners pooled their hashing power together to ensure smoother and more predictable earnings. Today, most of the individual mining is done in pools. Only large, professional mining operations mine solo. We will guide you through the process of making an informed decision on whether to mine solo or to join a pool. Furthermore, we will summarize what characteristics are desirable in a pool, so that your decision of which pool to join will be easier to make. We will also go through the details of setting up your mining software and wallets, for both pool and solo mining.
We will delve into the following topics:
In this chapter, we are assuming that you have your hardware connected and configured. Take a look at the previous chapters if you need help with configuring your mining hardware. Here, we will concentrate more on setup and the factors that will affect your decision to mine all by yourself versus mining with a pool.
Solo mining is the process of mining where a miner performs all calculations by him/herself. Any blocks found are credited to the miner and all rewards are kept by the miner. In solo mining, the miner competes against all other miners, pools, and individuals to solve a block.
Mining solo can be thought of as mining in a pool where you are the only worker. Instead of connecting to a pool, you will connect to your wallet and the wallet will act as a pool. The wallet gives the mining software all the necessary details in the form of a candidate block in order to start hashing it away. Therefore, running a wallet known as a full node is required for solo mining.
Pool mining started to appear in 2010. When you compete against other miners as a solo miner, your proportion of network hashing power may be small. As a result, you may only solve a block perhaps once a month or even once a year (depending on your hashing power). We can only calculate what the expected time to solve a block will be; however, we cannot predict exactly when it will happen.
To smooth out this variance, miners started to organize themselves into pools. In pool mining, a large number of miners work together to solve a block. Once someone in the pool finds a block, the rewards are shared among all miners belonging to the pool. This makes the payout more frequent, albeit smaller, and more predictable.
There is a variety of mining pools, with a variety of strategies. Perhaps the most popular (and fair) is the proportional pool. Here the reward is distributed to miners based on how much work they have contributed. How is a contribution calculated...
Majority attack on Bitcoin
The design of Bitcoin allows for one obvious attack. The attack is called a 51% attack, after the amount of hashing power that is required to mount such an attack. At various times, mining pools have come close or have achieved 51% of the hashing power. A dishonest pool operator could use that hashing power to mount an attack. Therefore, a responsible miner should monitor the pool and when a pool gets close to that threshold, the miner should switch to another pool. Keeping the hashing power distributed is in everyone's interest.
Let's now discuss what a 51% attacker can and cannot do. We'll start with what they cannot:
An attacker cannot steal coins belonging to an existing address. This is because the attacker does not know the private key required to sign a transaction allowing transfer of the coins.
The attacker, also, cannot prevent transactions from being propagated throughout the network, since we are assuming that the attacker does not control the...
In this chapter, we explored solo mining and pool mining in more detail. We showed you how to set up your wallet and your mining software to be able to mine solo. We talked about the use of configuration files for the wallet and also configuration files for cgminer. We discussed mining pools and what to look for when joining one. We touched upon a very important attack against the network that every miner should be aware of—a 51% attack. In the next chapter, we will look at large-scale mining operations.
