How Mining Pools Calculate and Distribute Earnings to Miners

Bitcoin mining operates on a Proof-of-Work (PoW) consensus mechanism. Mining pools, which aggregate computational power from multiple miners, distribute earnings based on verified work contributions. The core principle is "fair share according to computational effort", forming the foundation of all payout structures.

Primary Settlement Methods in Bitcoin Mining Pools

Modern Bitcoin pools primarily use FPPS and PPS+ systems. Historically, PPS and PPLNS were dominant during early mining pool development when competition was limited and transaction fees were negligible. Below we analyze each method's mechanics.

1. PPS (Pay Per Share)

• Mechanism: Pays miners based on valid shares submitted, calculated via:

  Daily Earnings (P) = (H × 86400 × R) / (D × 2^32)

  Where:
  H = Miner's hash rate | D = Network difficulty
  R = Block reward | 86400 = Seconds/day

• Key Feature:

  • Miners receive fixed "wages" regardless of the pool's luck factor.
  • Analogous to an employee-employer relationship—stable income but no upside from high-luck blocks.

Luck Value Explained

A pool's luck measures actual vs. expected block discoveries. Example:

• 100% luck = Matches statistical probability
• 120% luck = 20% more blocks than expected
• 80% luck = 20% fewer blocks

2. PPLNS (Pay Per Last N Shares)

• Mechanism: Distributes rewards based on a miner's share of the last N submitted shares. Earnings fluctuate with:

  • Pool's actual block rewards
  • Miner's contribution percentage during the share window

• Key Feature:

  • Miners act as "profit-sharing partners"—higher risk/reward than PPS.
  • Zero earnings if the pool has no blocks during the share window.

Example:
A pool earns 125 BTC in rewards. Miner A contributed 10% of shares → Receives 12.5 BTC (before fees).

3. PPS+ (Pay Per Share Plus)

• Hybrid Model:

  • Block rewards: Paid via PPS (fixed rate).
  • Transaction fees: Distributed proportionally by actual hash power contribution.

Example Calculation:

• Miner's PPS block reward = 10 BTC
• Pool's total fees = 2 BTC | Miner's hash share = 10%
  → Total payout: 10 + (2 × 0.1) = 10.2 BTC

Note: Fee income still depends on pool luck (more blocks = more fees).

4. FPPS (Full Pay Per Share)

• Mechanism: Pays both block rewards and fees at theoretical rates, eliminating luck-based variance entirely.

Example:

• Miner's PPS reward = 10 BTC
• Network fee/reward ratio = 1.5%
  → Total payout: 10 × 1.015 = 10.15 BTC

5. SOLO Mining

• Description: Miners operate independently, bearing full luck volatility.
• Practical Use: Only viable for miners with massive hash power (equivalent to solo pool operation).

Comparative Analysis of Settlement Methods

Evolution of Mining Payout Systems

As competition intensified, pools refined payout models:

1. Early Stage: PPS/PPLNS (block rewards only)
2. Modern Standard: PPS+/FPPS (rewards + fees)

This shift reflects miners' demand for predictable income and fee monetization as Bitcoin's transaction volume grew.

FAQ Section

Q1: Which payout method is most profitable?

A: FPPS offers stability, while PPLNS may yield higher returns during lucky streaks. Choose based on risk tolerance.

Q2: Do all pools support FPPS?

A: No—check pool documentation. Top pools like F2Pool and Antpool typically offer FPPS/PPS+.

Q3: How does luck affect PPS+ earnings?

A: Only fee income varies with luck; block rewards remain fixed.

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Q4: Can small miners use SOLO mode?

A: Impractical due to extreme variance. Requires hash rates rivaling entire pools.

Q5: Why did pools start sharing fees?

A: Competitive pressure—fee inclusion became a key differentiator to attract miners.

Q6: How often are payouts processed?

A: Varies by pool. Most distribute daily or per-block-found basis.