A mining pool is a group of miners that work together to reduce the volatility of their returns. Miners share their processing power over a network, and then split the reward according to the amount of work they contribute to the probability of finding a block.
Mining in pools began when the difficulty for mining increased to the point where it could take years for slower miners to find a block (hence earn a payout). The solution to this problem was for miners to pool their resources so they could generate blocks more quickly and therefore receive a portion of the block reward on a consistent basis.
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