The Ultimate Guide to Bitcoin Mining Pool Payout Methods

When stepping into the world of Bitcoin mining, joining a mining pool can be a smart move. Instead of relying on sheer luck to earn block rewards, mining pools offer a way to stabilize earnings and offset risk. However, choosing the right pool isn’t just about finding one with low fees or high hash rates—it’s about understanding how the payouts work. Different mining pools offer various payout methods, each with a unique risk-reward profile for miners and the pool itself. Below is a guide that can help you make the best decision for you.

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In this post, we’ll explore the most common payout methods: PPS, FPPS, PPLNS, PPS+, and more, including solo mining. We’ll break these methods down with easy-to-understand analogies, explain the financial implications, and highlight popular pools like Lincoin, Braiins, and Ocean Pool.

The Spectrum of Risk of Payout Methods: Who Bears the Responsibility?

Think of mining pool payout methods as a sliding scale of risk: on one end, the pool takes on most of the risk, while on the other end, the risk is pushed onto you, the miner. Let’s walk through the different structures and where they fall on this spectrum.

Pay-Per-Share (PPS)

Imagine working a job where you get paid for every task completed, regardless of whether the company profits from your work. That’s PPS in a nutshell. The mining pool pays you a fixed amount for each share you submit, regardless of whether the pool successfully mines a block.

• Risk Distribution: The pool assumes all the risk. Whether or not a block is found, you get paid.
• Financial Implication: Lower risk for miners means predictable earnings, but pools often charge higher fees for this structure to account for their risk.
• Example Pools: Not common today

Full Pay-Per-Share (FPPS)

FPPS is like PPS but with a bonus. Not only do you get paid for your shares, but you also receive a portion of the transaction fees included in the block. Recall that the block subsidy of each block is predictable, but different blocks will have different rewards from the transaction fees. So, FPPS is more fair because they are including the fee rewards in the distribution to the miners.

• Risk Distribution: Similar to PPS, the pool takes on the risk of not finding a block but sweetens the deal by sharing transaction fees.
• Financial Implication: Slightly higher payouts than PPS, especially during periods of high network activity.
• Example Pools: Lincoln (Fee 2.5%), Braiins (Fee: 2.5%), F2 Pool (Fee: 4%)

Pay-Per-Last-N-Shares (PPLNS)

Now, imagine a factory job where you’re paid based on how much the team produces, but only the most recent workers get paid when a batch is finished. That’s PPLNS. Here, miners are paid only when the pool successfully mines a block, and the payout is based on their contribution to the last “N” shares.

• Risk Distribution: The risk shifts more towards the miner. No block means no payout.
• Financial Implication: Higher potential earnings during periods of consistent block discovery, but less predictable income.
• Example Pools: F2 Pool (Fee: 2%), Kano Pool (Fee: 0.5%), Ocean* (Fee: 2% or 1%)

*Ocean pool’s payout method is similar to PPLNS, with some slight differences in infrastructure. Details on their payout below.

Pay-Per-Share Plus (PPS+)

PPS+ is a hybrid of PPS and PPLNS. You receive a fixed payout for each share (like PPS) and a share of the transaction fees (like PPLNS) when the pool finds a block.

• Risk Distribution: Moderate. You get consistent payouts for your shares but benefit from transaction fees.
• Financial Implication: Balanced risk and reward, making it an appealing option for miners looking for stability with some upside.
• Example Pools: Not common today.

Solo Mining

Solo mining is the high-stakes poker of Bitcoin mining. You’re not pooling resources with anyone else—it’s just you and the blockchain.

• Risk Distribution: All the risk is on you. If you find a block, you keep the entire reward (at the time of writing it would be 3.125 BTC + transaction fees), but if you don’t, you get nothing.
• Financial Implication: High potential rewards but extremely unpredictable. Solo mining is typically only feasible for those with massive hash power, or those simply interested in gambling.
• Example Pools: public-pool (Fee: 0%), Kano Pool (Fee: 0.5%), CK Pool (Fee: 2%)

Breaking Payout Methods Down with Analogies

To make these payout methods clearer, let’s use an analogy of fishing in a lake:

• PPS: You get paid every time you cast a line, whether or not you catch a fish.
• FPPS: You get paid for casting and also receive a bonus for the fish other people caught.
• PPLNS: You only get paid when a fish is caught, and only if you were one of the recent people casting a line.
• PPS+: You get paid for casting and receive a bonus if a fish is caught.
• Solo Mining: You’re fishing alone. You keep the entire fish if you catch one, but if not, you go home empty-handed.

Ocean Pool and the TIDES Payout Method

Ocean Pool is introducing an innovative payout system called TIDES, which stands for Transparent Index of Distinct Extended Shares. This new system is designed to make payouts more consistent while eliminating the need for the pool to hold miners’ Bitcoin rewards.

What Makes TIDES Different?

• Transparency: Miners can independently verify their share of rewards, ensuring everything is fair and open.
• Low Variance: By tracking a longer work history (eight blocks), TIDES helps smooth out the ups and downs in payouts.
• Non-Custodial: Unlike traditional pools, TIDES doesn’t hold miners’ earnings, which enhances security and trust.

How Does TIDES Work?

TIDES keeps a record of every miner’s valid work in a “share log.” When a block is mined, the rewards are distributed based on how much work each miner contributed during the share log period.

For example, if a miner did 5% of the work, they’ll get 5% of the block reward, including any transaction fees. This approach ensures that miners are fairly paid for their contributions over time, with payouts becoming more predictable as luck evens out.

Benefits of TIDES

• Fairness: Each miner’s work is clearly tracked, so everyone gets exactly what they earned.
• Stability: Miners enjoy steadier payouts compared to other methods like PPLNS or solo mining.
• Scalability: TIDES can handle large mining operations efficiently, even though it requires more resources.

Why It Matters

TIDES is especially useful during times of high network difficulty or when transaction fees are high. Miners get their fair share of rewards without having to rely on the pool operator to manage funds.

Ocean Pool charges a 2% fee, but miners can reduce this to 1% by running their own node through a system called DATUM. DATUM provides the miner with the ability to construct their own block template. Meaning, they can choose what transactions they include in their own block.

How TIDES Payout Method Compares to Other

TIDES is similar to PPLNS (Pay-Per-Last-N-Shares) in that it rewards miners based on recent work. However, it avoids PPLNS’s common issues, like high payout variance and lack of transparency. Unlike FPPS (Full Pay-Per-Share) or PPS+ (Pay-Per-Share Plus), TIDES doesn’t require the pool to pre-fund payouts, making it more secure and sustainable.

Factors to Consider When Choosing a Payout Method

1. Risk Tolerance: Are you comfortable with fluctuating earnings, or do you prefer stable, predictable payouts?
2. Hash Rate: Higher hash rates can handle the variability of methods like PPLNS, while lower hash rates may benefit from PPS or FPPS.
3. Pool Fees: Pools often charge higher fees for lower-risk methods like PPS and FPPS.
4. Transaction Fee Sharing: During periods of high network activity, FPPS and PPS+ can yield significantly higher returns.
5. Transparency: If verifying your rewards independently is important, consider pools like Ocean Pool with TIDES.

Conclusion

Understanding mining pool payout methods is essential for maximizing your profits and aligning your mining strategy with your risk tolerance. Whether you prefer the steady income of PPS or FPPS, the team-based approach of PPLNS, the innovative fairness of TIDES, or the thrill of solo mining, there’s a method and a pool that fits your needs.

Take the time to evaluate your financial goals, hash rate, and willingness to take on risk. By doing so, you’ll be better equipped to choose the right payout method and pool, ensuring your mining journey is as profitable and rewarding as possible. If you aren’t mining yet, but want to, book a call with Abundant Mines to start.

Disclaimer: The information provided in this blog is for informational and educational purposes only and should not be construed as financial advice. Please consult with a financial advisor or conduct your own research before making any financial decisions.