What is a mining pool?
What are mining pools, and why are they controversial in the Bitcoin environment? What problems do they solve, and where did they come from? In this video, shot in Lighthouse Point's "Exchange Club Park", I discuss mining pools, and all things Bitcoin.
What's up party people? Chris DeRose here, Community Director of the Counterparty Foundation. And in today's video I wanted to answer the question, what is a mining pool? I'm answering this question right here off of Hillsboro Boulevard roughly in East Pompano, it's a nice stay, and at the end of the day, there's a whole bunch of pelicans in the background, voters returning home, so good place to discuss mining pools. So a mining pool is a relatively consistent idea in Bitcoin. It's been around pretty much since the start. The initial miners were individuals and those individual miners were often 16-year-olds with gaming hardware, and they were sitting there around themselves try to win blocks, and oftentimes they did because it was very small back then. But what was starting to happen is people were trying to spread their output on their mining into a way there was a little bit more reliable for them in terms of their return, a little less risky in terms of the return.
And so what would happen was, pools of miners began to aggregated. And these pools, at first, were very rudimentary. They had maybe 10 people on it, or maybe even 100 people on this pool. And if you contributed 2% of the hashing power, then you received 2% of the reward. Sometimes there would be a small operating fee for the actual pool. And over time, these pools got a little bit bigger an then now there's Jesus, probably four or five major ones that are controlling much of the Bitcoin mining output, and the reason to join these pools are because there's the network hash strength has gotten larger, your share has gotten smaller, and the chance that you'll win a block is very small.
In you entire career as a miner, maybe with your rig, you may win a single block. Rather than wait for that one payout and having to consume all this energy, until then, you can get a fraction of return on your output by joining a pool. These pools are a little bit controversial. Some people like to say that it actually causes miner centralization. I don't believe that. I think there's an optimal number of miners, and I think that pools will help us get there.
I also believe too that pools are changing over time. We saw, in some cases, I think the CEX and IO, the Ghash IO pool, which had I think 54% or something like that in mid-2014 or something like that, you saw that through all the controversy that arised, that pool ended up getting smaller until the other pools then got some of the outbound participation from that pool. And since we've had some very healthy checks and balances in the pools. I think there's also a lot of work being done in Pecha [SP] pool and some of these other distributed pool mechanisms, whereby joining the pool won't actually provide any one pool operator an inordinate amount of control. In fact, I think this is one of the nice things about Bitcoin, that people really are often quick to discount. It is an adaptable protocol.
It is evolving. And when we find a deficiency, we don't prematurely optimize for that deficiency, we actually adjust the network so that in a it accommodate that deficiency. And so we will see the pools, in time, probably become more and more decentralized and sort of return back to, I think, what a lot of people wanted to see. I don't even know if that's bad or good, but wanted to see in terms of a truly decentralized mining output. But that's what pools are. There are ways to aggregate the risks on output for their mining between a smaller number of individuals in a way that rewards them commensurately for their input into the pool.
And if you have more questions on mining pools, if you have more question about Bitcoin, go ahead and ask them in the comments below, or tweet me on Twitter, I'm DeRosetech, and that's about it for today. Subscribe to the channel if you like this video. Peace out. Later party people.