Network Difficulty and Mining Pools

BITCOIN NETWORK DIFFICULTY

A new block, and its resulting 25 Bitcoin reward, is created every 10 minutes on average. The Bitcoin network has a built-in monitoring system, which adjusts the complexity (or difficulty) of the mathematical equation used to “solve” each block in order to maintain the constant speed of Bitcoin production.  This adjustment occurs every 2048 blocks, and can cause the difficulty to either increase or decrease, depending on whether more miners joined or left the network.  If the moving average deviates from the average of 2048 blocks every 2 weeks, the difficulty of solving the block is updated to reflect that.  For instance, if 10% more hash power is added to the network, then the difficulty will increase by approximately 10%.

In the early days of Bitcoin mining, the network was made up of so few miners that an individual had a good chance of solving a block.  But once the odds of an individual miner solving a block became extremely unlikely, miners created “mining pools” to generate more consistent and predictable payouts over time. I’ll get into that next.  You can see a graph of the last year’s difficulty in the footer of every page on this site.

Mining Pools

Since there are now hundreds of thousands of miners in the world, including many large industrial Bitcoin mines, the odds of solving a block on one’s own is very unlikely.  This is exactly why miners combine their individual efforts together into large mining “pools.”  If one miner in a pool solves a block, then the profits are distributed to pool members, based on each member’s attempts at solving the block.  Some mining pools impose fees to cover things like servers, maintenance and bandwidth, and most accept donations as well.  There are currently about 14 mining pools with more than 1% of the global network, and new mining pools are constantly being created.

The seven most popular publicly available pools include:

Discus Fish (f2pool)

AntPool (Bitmain)

GHash.IO

BTCChina

BTCGuild

Slush’s Pool

Eligius

Advance to “The History and Evolution of Bitcoin Mining” —>

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