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I have a simple question. Suppose that I sign up with some cloud mining service. I would like to know a bit more about how the system works. Let's say that the cloud mining service I use has n users, N = 1,...,n}, each user i contributing w_i> 0 CPU cycles to creating the block. In order to complete a block, T cycles are needed (this is a simplification, I assume that the number of cycles needed is a random variable; however, you can reasonably talk about the expected number of cycles).

We managed to create the block and got a reward R for it (R = 0 is reasonable, that just means that resources were committed, but we failed at getting the block).

How is R shared? Is it proportional to the number of cycles? Is it just equal division? Is there a more clever method involved?

Bonus question: what is normally the ratio between the amount of work invested and the actual work needed? Is it the case that the number of cycles committed is much greater than the number of cycles needed? Is there even a need to commit cycles, or is it the case that once a block is done, the pool moves on to mining another block?

I have tried to find an answer online, on the websites of the big cloud mining companies, but all they offer are promises of revenue, rather than an explanation of the revenue division mechanism.

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There are many different reward schemes used. One thing almost all of them have in common is that they base the rewards on "shares". Each miner earns one or more shares by producing hashes that are sufficiently low. Essentially, miners prove they're actually trying to find blocks by providing a sample of their best attempts to the mining controller.

Reward schemes generally try to do two things:

  1. They try to even out the reward so that miners have less variation in the rewards they get if they mine at a constant rate.

  2. They try to prevent people from strategically joining or leaving different mining pools to prevent schemes that give miners more than their fair share.

The simplest scheme is called PPS (pay per share). With PPS, each share earns a fixed reward, regardless of how well or badly the pool as a whole does. This provides the least variation to miners, but gives the pool operator the most risk.

One of the most common sharing mechanisms is called PPLNS (pay per last N shares). With PPLNS, when a block is found, the reward is divided among those who earned the most recent shares, proportional to the number of shares each miner found during that window.

Other schemes can get fairly complex.

  • So it seems that it is usually the case that people are paid proportionally to the effort they put in. Thanks! – Spark Jun 10 '14 at 18:58

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