The selection of a mining pool is not a trivial task. 1 After the establishment of mining pools, it became nearly impossible for “solo” miners to compete on the mining game, even if they were using specialized hardware, or else they could risk not to earn any rewards at all during the hardware’s lifetime.
These coalitions known as “mining pools,” where miners are all continuously trying to mine a block with the “pool manager” being the reward recipient, enabled participating users to reduce their mining risks. Bitcoin or Ethereum mining ASICs ), and eventually users formed coalitions for better chances of solving the puzzle. However, as the exchange rate of cryptocurrencies increased, the PoW competition became fiercer, specialized hardware was manufactured just for the purpose of mining particular types of PoW (e.g. In the early years of cryptocurrencies solo mining was the norm, and a miner using his own hardware would attempt to solve the PoW puzzle himself, earning the reward. At any given time, a set of users all over the world (called miners or maintainers) competes in solving a PoW puzzle that will allow them to post the next block in the blockchain and at the same time claim the “Coinbase” reward and any relevant transaction fees. The majority of cryptocurrencies use some type of proof-of-work (PoW)-based consensus mechanism to order and finalize transactions stored in the blockchain.
average excess reward over its standard deviation/volatility). To showcase our model, we run an experiment in Bitcoin historical data and demonstrate that a miner diversifying over multiple pools, as instructed by our model/tool, receives a higher overall Sharpe ratio (i.e. optimization techniques) to experimentally prove how parties (and in particular miners) interact with cryptocurrencies in a way of increasing their Sharpe ratio. Our underlying techniques are drawn from both the areas of financial economy and computer science since we use computer science-based approaches (i.e. Our tool allows miners to maximize their risk-adjusted earnings by diversifying across multiple mining pools.
build a mining portfolio), taking into account their risk aversion levels. In this work, we look into mining pools from the point of view of a miner: We present an analytical model and implement a computational tool that allows miners to optimally distribute their computational power over multiple pools and PoW cryptocurrencies (i.e. However, this rise of participation in mining pools negatively affects the decentralization levels of most cryptocurrencies. The vast majority of miners today participate in “mining pools” instead of “solo mining” in order to lower risk and achieve a more steady income. Mining is a central operation of all proof-of-work (PoW)-based cryptocurrencies.
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