How major Bitcoin mining pools calculate pay-per-share

Bitcoin mining pools are straightforward: complete your share of work to earn your share of the winnings. Roughly $10 billion in annual payouts to miners around the globe makes Bitcoin mining the highest stakes proof-of-work (PoW) competition in the world.

However, formulas for calculating payouts to pool participants vary widely. Since the birth of mining pools 13 years ago, pool operators have used dozens of methodologies to smooth out income or reduce the need for trust.

For example, how can a miner trust that their pool operator is honestly reporting the winnings of other workers and fairly distributing in-band and out-of-band transaction fees?

• Users pay in-band transaction fees in bitcoin, on-chain. These fees are publicly verifiable.
• In contrast, users pay out-of-band transaction fees in any denomination besides bitcoin. For example, mining pool ViaBTC accepts credit card payments for bitcoin transactions.
• Similarly, Luxor mined TaprootWizards’ ‘Big Wizard’ 4MB block with a $0 on-chain transaction fee, mining the entire block for non-bitcoin, out-of-band fees.

Multiple payout types explained

The reason for multiple payout types is that there’s no singular consensus for the best type. Some pool operators assume more financial risks in order to smooth out the income for their participants. Others make participants assume more (or all) of the risk.

Bitcoin mining is a lottery, anyway. Only the winning guess among millions of cryptographic computations will produce a numerical hash for a block of data that satisfies Bitcoin’s difficulty threshold.

The only action that increases your odds of winning any fair lottery — such as Bitcoin mining — is to buy more tickets. Equally, the only thing that increases a miner’s odds of satisfying Bitcoin’s difficulty threshold is contributing more hashes than their competitors.

In the end, miners are free to choose which pools they contribute to in hashrate. Some miners choose conservative pools; others try their luck. The most risk-seeking miners skip pools altogether and ‘solo mine.’

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