Bitcoin and Cryptocurrency Technologies

Proportional. ​In the proportional model, instead of paying a flat fee per share, the amount of
payment depends on whether or not the pool actually found a valid block. Every time a valid block is
found the rewards from that block are distributed to the members proportional to how much work
they actually did.
In the proportional model, the miners still bear some risk proportional to the risk of the pool in
general. But if the pool is large enough, the variance of how often the pool finds blocks will be fairly
low. Proportional payouts provide lower risk for the pool manager because they only pay out when
valid blocks are found. This also gets around the problem that we mentioned with the pay‐per‐share
model, as miners are incentivized to send in the valid blocks that they find because that triggers
revenue coming back to them.
The proportional model requires a little more work on behalf of the pool managers to verify,
calculate, and distribute rewards as compared to the flat pay‐per‐share model.
Pool hopping. ​Even ​with just these two types of pools, we can see that miners might be incentivized
to switch between the pools at different times. To see this, consider that a purely proportional pool
will effectively pay out a larger amount per share if a block is found quickly, as it always pays one
block reward no matter how long it has been since the last block was found.
A clever miner might try mining in a proportional pool early in the cycle (just after the previous block
was found) while the rewards per share are relatively high, only to switch (“hop”) to a pay‐per‐share
pool later in the cycle, when the expected rewards from mining in the proportional pool are relatively
low. As a result of this, proportional pools aren’t really practical. More complicated schemes, such as
“pay per last ​N​shares submitted” are more common, but even these are subject to subtle pool
hopping behavior. It remains open how to design a mining pool reward scheme that is not vulnerable
to this kind of manipulation.
History and standardization. ​Mining pools first started around 2010 in the GPU era of Bitcoin mining.
They instantly became very popular for the obvious reason that they lowered the variance for the
participating miners. They’ve become quite advanced now. There are many protocols for how to run
mining pools and it has even been suggested that these mining pool protocols should be standardized
as part of Bitcoin itself. Just like there's a Bitcoin protocol for running the peer‐to‐peer network,
mining pool protocols provide a communication API for the pool manager to send all of the members
the details of the block to work on and for the miners to send back to the pool manager the shares
that they're finding. getblocktemplate (GBT) is officially standardised as a Bitcoin Improvement
Proposal (BIP). A competing protocol, Stratum, is currently more popular in practice and is a proposed
BIP. Unlike the Bitcoin protocol itself, it is only a minor inconvenience to have multiple incompatible
mining pool protocols. Each pool can simply pick whichever protocol they like and the market can
decide.
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