What are the advantages and disadvantages of pooled mining?

Question

Is it better to mine solo? Is pooled mining what is recommended now? I've heard you get about the same back either way, but I am confused and would like some help.

Answer 1

Pooled mining:

1. Low variance: you get paid every day.
2. Easy setup: leave most of the headaches to the pool admin(s).
3. Fees: It is possible to mine with low fees. But the offers you are presented with from pools can be tricky to understand. Currently mining income from transaction fees is about 1.5%. Many pools take this income from you and don't mention it. Merged mining of namecoins give you about 6% extra income at the time of writing this. Most pools don't do this. Paying 7.5% fee can actually mean earning 15% less than your potential (7.5 + 1.5 + 6 = 15). Some pools (proportional and "score" reward methods) are vulnerable to pool hoppers, which means you may end up with a smaller share of the coins than you should. Get some info on these things when choosing a pool. The frequently updated mining pools list at bitcointalk is a good resource: https://bitcointalk.org/index.php?topic=104664.0
4. Trust: someone else is handling your money. Don't leave large amounts of money at the pool. Check the pool's track record. This also goes for exchanges and anywhere else where you leave your coins with someone else. Read the neighborhood pool watch at http://organofcorti.blogspot.com and stay informed.

Solo mining:

1. High variance: you might get paid 25 BTC once a year. Or with some bad luck it might take 10 years. If you have fast hashpower maybe you get paid every month on average. And with bad luck it might take 6-12 months. If you mine for 12 months to get a block and then see it get orphaned you will probably not be a happy miner.
2. Complicated setup: you are your own pool admin. You will want to do merged mining otherwise you make much less than in a merged mining pool. You will find that namecoind crashes very often. You will find that publically available pool software is outdated, broken, inefficient and no longer maintained in most instances. To ensure your blocks are rarely orphaned you need good connectivity to the bitcoin peer-to-peer network, especially to the large pools. You don't want them to mine a competing block at the same height simply because they don't yet know that your block already exists.
3. No fees. Potentially the best earnings if you do merged mining and do the work to ensure orphan rates are low. Note that if you don't do merged mining or if you let your orphan rate slip, then this point turns into a negative: you make less than you would at a low-fee merged mining pool.
4. Trust: you can probably trust yourself, assuming you have the technical skills necessary.

TLDR; solo mining requires a lot of hashpower and is not for the faint of heart. Even then the benefit is questionable depending on which pool(s) you compare with.

Disclaimer: I run the BitMinter mining pool.

Answer 2

Disadvantages of pooled mining:

1. Smaller expected earnings - pools usually charge a fee and sometimes use a reward system (like Pay Per Share) that can give you a lower payout.

2. Having to rely on third party system to earn your money - websites go down, and when they do, your miners can be idling.

3. Trust - you have to trust the pool owner not to swindle money from you, either by creating fake miners in the pool that do no work but still receive rewards or otherwise. Similarly, the pool owner can have an agenda of their own that they wish to further (for example, Eligius pool owner used their miners to attack an alt-chain, as well as putting prayers in the coinbase transactions).

4. Giving power to the pool owner - some important decisions regarding Bitcoin future are made by people voting with their blocks. Some time ago the Bitcoin community had to chose between two BIPs that fulfilled the same role. The voting was done by the coinbase transactions containing a vote for either one of the BIPs. By giving their computing powers to the pools, the miners essentially gave their votes to pool owners to vote as they chose.

Advantages of pooled mining:

1. More predictable payouts - pools usually pay you on a more regular schedule - be it once you reach a certain threshold, daily or the like. Solo mining only pays you when you find a block, which can take a few days, years, or never.

2. Extra features - Pools usually let you quickly check the status of your miners from anywhere, notify you of payouts and the like, which would take you a lot of extra setup time on your own.

3. Less space - If you are solo mining, you need to keep your own copy of the blockchain. Pools handle all that by themselves.

4. It is easier - There is a low less setup required to do pooled mining, especially when we are talking about merged mining and so forth.

Answer 3

While i agree with ThePiachu, here some additional thoughts.

1. Pool software

   • Beeing a solominer would create the need for a pool software. While very few are opensource, the majoritiy is proprietary.

2. Security

   • As a solominer youre solely responsible on your own for any serverside/softwareside security, dealing with ddos and exploit attempts. (However, i dont like to rely on others i barely know.)

3. Pool owner

   • This is already mentioned, but highly important. Questions one should ask are:

   • What is the motivation of the pool owner to run the pool, how does he makes profit?

   • Has the pool owner been accused for scam or ben involved in other unethical behavour?
   • How are the coding skills, admin skills, security skills?
   • Is he running his own software?
   • Is it a team or one man business, if a team, how does the team profit without your coins?

4. Payout & reward system.

Additional note: even as solominer you will be object for intrusion attempts (at least very likely), as bitcoin in its nature is transparent and will make your node appear to the public. (Diversify your bonds ;))