281A1 1 0 1 0 . 132 4a1 1 0 0 0 1. Orphan blocks aka orphans: Blocks that couldn’t get added to timejacking bitcoin miner main chain despite being successfully mined.
Hashrate: Basically means how powerful that miner’s computational resources are. So without any further ado, let’s get started. Once they successfully mine a block, they gain the power to put in transactions inside the block. That’s basically how transactions happen in all cryptocurrency, a miner puts in the record of the transaction inside the block. Satoshi Nakamoto, the creator of bitcoins, envisaged that as more and more miners got in, the rate of bitcoin mining would exponentially increase, so much so that all the available bitcoins could be mined out in a couple of years! Now, this could be a disaster for bitcoins, because like all economic commodities, the value of bitcoin lies in supply and demand. If the supply of bitcoins suddenly increases, then that would decrease the demand, which would in turn hurt its value.
To prevent the supply of bitcoins from going out of hand and to make it a more sustainable model, Satoshi implemented a difficulty adjust system. As more and more blocks get mined, the difficulty of the cryptographic puzzles increase exponentially. Basically, the more bitcoins you mine out, the more difficulty the process of mining becomes. Miners soon found out that they can’t really mine efficiently by themselves anymore, the process was getting more and more expensive. The pools are run by pool managers. It is far easier to upgrade the overall network because instead of coordinating with random independent miners, the pool managers can simply upgrade the network by themselves. Reduces variance in mining rewards:One of the biggest reasons why miners join pools is to reduce variance in their mining rewards.
To understand what variance means and how that affects miners, we will need to do some mathematics. Goodman and her medium article for the explanation. First, let’s understand what Bernoulli distribution is. Standard deviation is a term which defines by how much are the members of a particular distributed group varying from the mean of the group. In the context of the blockchain and this example, standard deviation is by how much is this miner’s reward going to be deviated from the expected reward.
If you substitute the values accordingly to the standard deviation equation then you will get a standard deviation of 0. The only solution to decrease this deviation and variance is to pool in resources to together to increase the overall hash rate percentage, which is exactly what mining pools offer. A lot depends on the ethics of the pool manager. Centralisation:The biggest criticism that most pools face is that they lead to centralization of coins. Let’s see what we mean by that.
When a pool overwhelmingly takes in more and more stake in the hashrate distribution chart, they defeat the purpose of decentralization. We have already seen how important miners are in the context of a blockchain. When a group of miners control so much hashrate, they tend to become the central authority themselves. That entity could be a mining pool or an authority figure. In fact, this has already happened with bitcoin once before.
In July 2014, the popular mining pool GHash. They then voluntary cut themselves down and explicitly stated that they would never pass 39. Picturize this, suppose you are a hostile entity and you have limitless capital at your disposal. You can then proceed to destroy the value of the coin by either initiating double spends or by bloating up the chain with spam transactions. Now this, is a very interesting and diabolical scenario. Vitalik Buterin gave a great example of this by showing how the takeover problem can happen in Ethereum.