Not All FPPS Pool Pay-outs Are Created Equal
The Mechanics Behind FPPS Pools
Full Pay Per Share (FPPS) pools have emerged as a dominant pay-out model, offering miners predictable earnings and reducing risks associated with network variance. But how do FPPS pools calculate rewards, and how do these pools differ from each other? This article explores the mechanics behind FPPS pools, the factors influencing rewards, and why managing these pools can be capital-intensive. We'll also compare FPPS pools with NiceHash, highlighting key differences and opportunities to maximize earnings selling hashrate via a marketplace.
Mining Pools and the Rise of FPPS
How FPPS Pools Calculate Rewards
Hashrate Contribution
Block Rewards
Network Producing More Blocks Than Expected
Managing FPPS Pools is Capital Intensive
Differences Between FPPS Pools
Fee Structures
Transaction Fee Calculation
Precision in Share Counting
Payment Frequency & Threshold
NiceHash Market Place vs FPPS Pools
Key Differences with FPPS System
Earning a Premium
NiceHash is an open marketplace that connects sellers or miners of hashing power with buyers of hashing power. Buyers select the crypto-currency that they want to mine, a pool on which they want to mine, set the price that they are willing to pay for it, and place the order. This order is then forwarded to everyone who is connected to NiceHash. The computing power you provide will fulfil the buyer’s order and you get paid for this service.
Mining Pools and the Rise of FPPS
Mining pools have become essential for Bitcoin miners seeking consistent rewards in an increasingly competitive network. By combining their computational power, miners share the rewards of block creation, reducing the income volatility of solo mining. Among the various pay-out models, Full Pay-Per-Share (FPPS) has gained popularity for its predictability.
FPPS pools stand out by offering predictable pay-outs that include both block subsidies and averaged transaction fees. This model provides miners with a steady income, regardless of whether the pool successfully mines a block, making it particularly attractive in volatile market conditions. As a result, FPPS pools are now a preferred choice for many miners, from small-scale operations to industrial players. But not all FPPS pools are equal, there are differences in fee structures, calculation of rewards and pay-out frequency.
How FPPS Pools Calculate Rewards
FPPS (Full Pay-Per-Share) mining pools calculate rewards by providing miners with pay-outs based on their contributed hashrate, regardless of whether the pool successfully mines a block. FPPS includes the block reward (currently 3.125 BTC) and the transaction fees associated with mined blocks. Here’s a breakdown of how these rewards are calculated.
Hashrate Contribution
Every miner’s pay-out is proportional to the share of the pool's total hashrate they provide. The pools tracks the shares of computational work submitted by each miner during a specific time interval to calculate the pay-outs.
In many cases the reward is calculated daily once the day is over. Rewards are based on all the blocks mined by the whole network for the given day. There are pools that recalculated as if the average 144 blocks was mined to provide miners a steady reward regardless how many blocks are found during a specific day.
Block Rewards
Miners are paid directly for their contribution to the pool’s total work, independent of whether a block is successfully mined. The result is a steady and predictable income stream. FPPS pools calculate pay-outs based on the number of valid shares miners submit at a given difficulty.
The block reward miners receive for their contribution is based on both the block subsidy and transaction fees.
Expected Block Reward = Block Subsidy (3.125 BTC) + Average Transaction Fees
Network Difficulty reflects how difficult it is to mine a block on the Bitcoin network. By dividing the total expected reward by the network difficulty, the block reward is converted into a value for each share submitted.
Pay-out per Share = Expected Block Reward / Network Difficulty
Based of these two formulas, FPPS pools can calculate the block subsidy awarded to the miner (the cut) depending on the number of accepted shares.
Block Subsidy Cut = Block Subsidy x (Accepted Shares / Network Difficulty)
Transaction fees are averaged over a recent time period (e.g., 24 hours or more) to provide a stable estimate. By factoring in transaction fees, FPPS pools offer pay-outs that reflect the full value of mining a block. The transaction fee cut based on the number of accepted shares can be calculated as follows.
Transaction Fees Cut = Average Transaction Fees x (Accepted Shares / Network Difficulty)
The total rewards an individual miner will receive consists of the block subsidy cut and transaction fees cut.
Not all mining attempts are successful. Miners often work together in mining pools to increase their chances of successfully solving a block and receiving the reward. When a miner contributes their computational power to a pool, they receive work units to solve. These work units are divided into “shares.” But did you know there are accepted and rejected shares? In the article below, we looked into what these are and what a good ratio is between the two.
Network Producing More Blocks Than Expected
Theoretically, the Bitcoin network should confirm 144 blocks per day, based on its target block time of 10 minutes (144 x 10 minutes = 24 hours). However, Marko Tarman of NiceHash, pointed out that in practice, the network averaged 147 blocks per day earlier this year. Why the discrepancy?
The Bitcoin protocol adjusts mining difficulty every 2016 blocks—approximately every two weeks—to ensure the average block time remains close to 10 minutes. However, the network’s hashrate is constantly increasing due to advancements in mining hardware and new miners joining the network. This persistent growth and a lag in difficulty adjustments, results in blocks being mined slightly faster than the 10-minute target. Over time, this leads to an average block count higher than the theoretical 144 per day.
For example between January 1st and May 31st, there were 152 days. During this period 22,350 blocks were confirmed (Block #823623 to Block #845973). Dividing 22,350 by 152 days results in an average of 147.04 blocks per day—approximately 2% above the theoretical expectation.
This 2% increase in block production translates directly into higher mining rewards than initially calculated using the standard assumption of 144 blocks per day. During this sample period, FPPS pools basing their reward on the actual blocks mined paid out a higher reward than pools using applying the 144 block per day for the pay out calculations.
Managing FPPS Pools is Capital Intensive
Operating an FPPS (Full-Pay-Per-Share) pool requires substantial capital reserves to mitigate the inherent variability in block production while maintaining consistent pay-outs to miners. FPPS pools take on all the risk associated with block rewards; they must pay miners regardless of whether the pool successfully mines a block. If a pool experiences extended periods of bad luck—failing to mine blocks for a prolonged time—it can face liquidity crises and potentially go bankrupt, as was the case with PegaPool.
To address these risks, many FPPS pools have partnered with Antpool, owned by Bitmain Technologies Ltd., the largest ASIC manufacturer and a significant holder of Bitcoin reserves. Bitmain offers insurance against bad pool luck, ensuring payouts to miners even during unfavorable mining conditions. However, this partnership comes with strings attached: miners are required to use Bitmain's block templates and transaction prioritization, and the mining rewards must be paid to Bitmain for later distribution. This arrangement consolidates control under Bitmain, contributing to the dominance of AntPool.
Differences Between FPPS Pools
Not all FPPS pools operate the same way, and key differences can significantly impact a miner’s profitability. Here’s a closer look at the factors that set them apart:
1. Fee Structures
Pools typically charge service fees ranging from 1% to 4%. A lower fee translates to higher pay-outs for miners, making it a crucial factor when selecting a pool. Some pools offer custom firmware designed to optimize mining rig performance. When miners use this custom firmware in conjunction with the associated pool, they may benefit from a 0% pool fee, with the only costs being the firmware developer's fees.
2. Transaction Fee Calculation
The way pools calculate and distribute transaction fees can vary. Some pools use longer historical averages (e.g., 7 days). Using a longer window smoothens out fee volatility. Pools using a shorter period will show a better reflection of transaction fee trends. Applying a shorter window for tx fee calculations has influence on the predictability and amount of payouts.
3. Precision in Share Counting
Pools employ different algorithms to track and validate the shares miners submit. Stricter validations may reduce the number of credited shares, potentially affecting pay-outs.
4. Payment Frequency & Threshold
Payment schedules vary between pools. Some provide hourly payments which can improve cash flow for miners. Others use daily payments which may be sufficient for miners with a longer-term focus.
Mining pools often set different thresholds for pay-outs, which determine the minimum amount Bitcoin a miner must accumulate before the pool sends it to their wallet. These thresholds vary by pool and are designed to balance transaction costs with convenience for miners. Typical this ranges between 0.001 BTC to 0.01 BTC. Lower thresholds, like 0.001 BTC, are more common in pools catering to smaller miners who prefer frequent pay-outs. Higher thresholds help reduce transaction fees, which can be significant for Bitcoin due to network congestion and high fees. Some pools allow miners to set their own pay-out thresholds within a predefined range, offering more control. There are also pools that offer lightning pay-outs for miners thereby reducing fees and offering small pay-outs.
The first Lightning Network implementation went live on the Bitcoin mainnet in March 2018. Since then, the network has continued to evolve. This year, various pool operators have begun offering the option of Lightning pay-outs for Bitcoin miners. Why is this development welcomed by many miners? Find out in this article.
NiceHash Marketplace vs FPPS Pools
NiceHash, the most popular hashrate marketplace, operates as a spot, on-demand platform where hashrate is delivered in real time. 'Spot' means that users bid for hashrate continuously, rather than making a one-time purchase, requiring active bidding. 'On-demand' refers to the flexibility it offers buyers to start or stop their hashrate orders at any time, without any long-term contracts, as everything functions in real time. The purchased hashrate is then directed to the buyer's preferred mining pool for immediate use.
Key Differences with FPPS System
NiceHash operates as a marketplace where miners sell their hashrate to buyers, who assume the risk of earning block rewards. Pay-outs are dynamic, driven by market demand, and occur every 4 hours if at least 1,000 sats are mined—an unmatched feature among platforms.
FPPS pools, on the other hand, offer fixed pay-outs determined by Bitcoin’s daily emission and network difficulty. Here, the pool itself absorbs the risk of earning block rewards, ensuring miners receive consistent pay-outs regardless of block production variability. NiceHash reflects dynamic market pricing, while FPPS pools guarantee stable pay-outs tied to blockchain data.
Earning a Premium
Miners can earn a premium through the Real-Time Pay-Per-Share (RTPPS) system. Introduced by NiceHash in 2014, the RTPPS system allows miners to earn in real time based on the spot price of hashrate. Unlike traditional pay-per-share models, RTPPS calculates the price of shares every minute, driven by buyer demand. Often, this price surpasses the regular PPS or FPPS rates, enabling miners to earn a premium on their computational power.
Earlier this year the benefits of earning a premium through the hashpower marketplaces became very clear. While hashprice—the revenue per petahash (PH) per day—was hovering around historic lows, miners selling their hashrate on the NiceHash marketplace saw a significant surge in profitability. On September 11th, the pay rate on NiceHash spiked to 0.0019931 BTC/PH/Day due to high demand, compared to the regular block rewards of 0.0007145 BTC/PH/Day. This jump reflected a hashprice of $116/PH/Day, a massive 205% increase over the market rate of $38/PH/Day at the time. Although the pay rate has since decreased, it remained significantly up to the day of publishing this article.
NiceHash introduced the world’s first fully automated, instant Lightning Network pay-outs for all miners! NiceHash has supported manual Lightning Network withdrawals since 2020. Now, all miners can receive their mining pay-outs directly to an external Lightning Network address. Enjoy instant mining pay-outs every four hours and skip the transaction fees on the blockchain! You can also split your earnings with your partners, friends, or kids, sending funds directly to their Lightning addresses.
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