A mining pool is a system whereby groups of miners pool their resources together to increase their chances of successfully mining a block and earning rewards. By combining their resources, they can collectively increase the hashrate of their network and find blocks more frequently, thus earning miners a more regular and consistent payout.
Each miner joins a mining pool by downloading and running the pool’s special software. The software allows the miner to connect to the pool’s server and receive tasks for mining. When the miner’s computer mines a block, the reward is shared amongst all the miners in the pool in proportion to the amount of work they contributed.
Rewards usually take the form of cryptocurrency and are deposited directly into each miner’s wallet. One of the major benefits of mining pools is that the risk of not finding blocks when solo mining is eliminated. By joining a pool, miners have much greater chances of receiving rewards, increasing their expected profit from this source.
Furthermore, because rewards are divided amongst all the miners in a pool, they also receive smaller but more frequent rewards, rather than one large reward. Mining pools impose a fee on each reward that they pay out to miners. This is done to cover administrative costs such as bandwidth fees and server maintenance.
The fee varies with each mining pool and may depend on individual mining agreements between the pool and its members.