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Ethereum: How do block rewards work with a mining pool?

Published by Terlumun Aondover on February 13th, 2025.

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How to Make Ethereum Block Rewards Work with a Mining Pool

As part of its Proof-of-Work consensus algorithm, Ethereum requires miners to solve complex mathematical puzzles to validate transactions and create new blocks. One of the key aspects of this process is the distribution of block rewards.

In traditional mining pools, each member contributes their computing power to find the reward. However, for a miner to win the first block, they don’t have to do any actual work on the Ethereum code; they just have to solve some complex mathematical problems in parallel with other miners using different code. This makes it difficult for them to ensure that each candidate’s solution is unique.

The Unique Solution Problem

For each solution to be unique and not shared across all nodes, the hash of a block must be computationally impossible for anyone else to duplicate. However, when multiple miners use different hash functions (often called “hashes”), it becomes more difficult to ensure that each solution is truly unique.

The Role of Mining Pools

Ethereum: How do block rewards work with a mining pool?

Mining pools are organizations or individuals that pool their computing resources to solve complex mathematical problems in parallel with other pools and nodes on the Ethereum network. This allows them to increase their chances of solving a block, which in turn increases their chances of earning a reward.

When multiple miners use different hash functions (e.g. SHA-256, Keccak-256), they will all compute the same solution to a particular puzzle. However, if multiple pools are competing for the same block reward, each pool can attempt to solve the puzzle independently and simultaneously, thus increasing their chances of earning a reward.

How Block Rewards Are Distributed

When a new block is created, it occurs through several steps:

Validation: The list of transactions in the block is validated by nodes on the network.

Mining: A miner attempts to find a valid solution to the puzzle (e.g., “what is the hash of this block?”).

Block Creation: If the miner finds a unique solution, they create a new block and broadcast it to the network.

Reward Distribution: The reward for creating a new block is split among all members of the mining pool.

In short, Ethereum block rewards are shared among mining pool members through the use of parallel computing and various hash functions. By pooling their computing resources, miners increase their chances of solving the puzzle, which in turn increases their chances of being rewarded for creating a new block.