Bitcoin mining pools: what they are and how they work
A Bitcoin mining pool combines miners' computing power and shares rewards. Payout methods set each miner's cut. The IRS taxes rewards as income.
Vahe HakobyanEditor-in-chief
Updated Oct 6, 20263 min readFact-checked
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- Pools offer smaller, steadier payouts than solo mining.
- The payout method sets each miner's share.
- The IRS taxes pool rewards as income.
A Bitcoin mining pool is a group of miners who combine computing power and share block rewards. Miners join pools for steadier, smaller payouts.
Why do miners join a pool?
Solo mining offers the full block reward, but the chance is low. A pool spreads that chance, so payouts are smaller and steadier. The pool usually charges a fee.
- Solo mining offers the full reward with a low chance.
- Pool mining offers smaller rewards more often.
- The pool charges a fee for its service.
How does a mining pool work?
The pool server assigns work and a target. Miners send back shares as proof of work. When the pool finds a block, it pays by contribution. The payout method sets each miner's share.
What are the risks and limits?
When a few pools control most of Bitcoin's hash power, they can threaten decentralization. In 2014, a single pool briefly reached a majority of Bitcoin's hash power, and miners moved away.
How are mining pool rewards taxed?
The IRS treats mining pool rewards as taxable income. You report the fair market value when you receive it, and that becomes your cost basis.
Bitcoin price todayLive price, charts and market data live in our Coins section.Frequently asked questions
Your hardware may keep running, but the pool cannot count your shares. You can point your miner at a backup pool if you set one up.
Usually yes. You change the pool address in your mining software, and your next shares go to the new pool.
No. Most pools run the node and assign work. You need mining hardware and a connection.
In a pool, you run your own hardware and share rewards. Cloud mining means you rent computing power instead.
