If you have heard about Bitcoin or crypto in general, you might have been left wondering how new coins are put into circulation, what crypto miners are and how they get paid.

In this article, I will cover the differences between some of the most popular reward systems used to distribute blockchain block rewards.

The Blockchain Block Rewards

Unlike fiat currencies, which can have their supply increased at any moment by printing more cash, in Proof of Work (PoW) cryptocurrencies new coins are generated through a process called mining. This means that no government or entity has the power to alter the rate at which new coins are put in circulation or total maximum supply of the cryptocurrency.

In most PoW blockchains, the issuance of new coins is predictable and pre-programmed, with new coins being created with each new block that is mined.

For example, in Bitcoin, miners use specialized mining hardware (ASICs) to compute the correct solution for the next block. If a valid solution is found by the miner, a new block is mined, and all the transactions contained within the block are validated on the blockchain.

Because validating transactions and securing the blockchain requires costly real-world resources, like energy and computing hardware, the miners are rewarded with the newly generated coins in the block they mined. Additionally, miners also receive the transaction fees from all the transactions they include. These rewards incentivize the miners to verify as many transactions as possible, and keep supporting the network.

NiceHash and Pool Mining Reward Systems

Now that you know what block rewards are and why they exist, we can take a deeper dive to understand how they are distributed, and the most common reward systems used to achieve this.

Solo Mining

Solo Mining is the most basic reward system, where miners get the block rewards directly from the blockchain. Solo Miners are connected via to other nodes in the blockchain by hosting their own full node. They use their node to listen to newly mined blocks and transactions to be added in future blocks.

These miners are constantly trying to find the solution for the next block, and when they do, they get all the block rewards directly to the wallet they define.

However, it is very rare to see Solo Miners in large blockchain networks like Bitcoin, because the amount of hashrate required to validate blocks at a steady and frequent pace is very high. Therefore, the vast majority of hashpower can be found in Pools.

Pools act as a single Solo Miner on the network and get their rewards directly from the blockchain. They allow various smaller miners to connect to their servers, split the work and also block rewards according to their preferred reward system (PPS, PPLNS or even “Solo”).

In a pool, instead of trying to find a solution for a block, miners try to find a solution for the pool’s job (which is of a lower difficulty), known as a mining share.

The Solo reward system in a pool simply means that the job given to the miner is of the same difficulty as that of finding a block in the blockchain, and that miners will not be splitting the block rewards for the blocks they find, despite being in a pool. Like in typical blockchain solo mining, miners get all block rewards, but they usually pay a fee to the pool for handling the full node and other infrastructure.

Solo Mining is good for miners who have large amounts of hashpower, which allows them to frequently find blocks. Because Solo Miners also don’t split rewards, if your miners happen to mine a block earlier than statistically expected, your profits will be substantially higher. It is also worth noting that Solo Mining directly on the blockchain means that miners will not have to pay any pool fees, which may also increase profits if miners are ready to deal with the associated infrastructure.

At NiceHash, you can effortlessly buy large amounts of hashpower for a specified duration of time with EasyMining, and try mining blocks yourself. If your miners mine one or more blocks, you get all the block rewards (minus the 1% pool fee)!

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PPS - Pay Per Share

Pay Per Share is a common reward system used by pools. This reward system is quite simple, as miners get paid for each valid share they submit. At NiceHash, how much a miner earns for an accepted share depends on the difficulty of the job associated with that share and the average pay rate from all orders with miners on the NiceHash marketplace. Learn more about shares here.

On pools, you might see some other variants of PPS, like FPPS (Full Pay Per Share, also known as PPS+), which takes into account the transaction fees from blocks mined by the pool, instead of just the newly created coins.

With this reward system, miners are always paid for all the valid work they contributed, unlike what may happen with some other reward systems. In Solo Mining or PPLNS, miners might not get paid for all their work if they disconnect before a block is mined.

PPS is likely your best option if your mining operation requires you to frequently stop mining. This can happen if you have different electricity rates throughout the day, if your farm is powered by renewable sources like solar or wind, or if your electricity contract requires you to reduce your consumption at a moment's notice to balance the load on the grid.

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PPLNS - Pay Per Last N Shares

The PPLNS system is one of the most popular reward systems used by mining pools. This is because it penalizes pool hopping (miners that frequently switch between pools), a behavior that can hurt the pool and be unfair to other miners.

Pay Per Last N Shares only rewards the miners that submitted valid work on the last N number of shares. This N number of shares is determined by the pool and, as miners submit new valid shares, older ones will be removed from the queue. If your submitted work is no longer part of this queue of N shares when a block is mined by the pool, you will not get any rewards.

PPLNS pools often have slightly lower fees than other options and, under the same conditions, miners that mine uninterruptedly might see slightly higher profits than with other reward systems.

It is important to note that at NiceHash, the price of the hashpower is solely dictated by the hashpower marketplace. This means miners can usually achieve significantly higher earnings with the PPS system at NiceHash than with a PPLNS system on a pool, especially on SHA256ASICBoost. Learn more about this here.

RTPPS - Real-Time Pay Per Share

The Real-Time-Pay-Per-Share reward system allows miners to get paid by the spot hashrate price in real-time. Unique in its approach, RTPPS calculates and pays out the price of shares every minute. This share price is determined by the buyers of hashrate and can surpass the standard hashprice value. Unlike traditional systems, RTPPS does not require block confirmation for miners to earn their rewards. This aspect is similar to PPS and FPPS, but it uniquely shifts the risk of block reward acquisition from the pool to the buyers of hashrate. Find out more here.

Conclusion

The original ways of solo mining on the blockchain have become quite impractical, making most miners connect their hardware to pools. Hopefully you now understand how some of the different reward systems work, and which might be best suited to your mining operation.

Regardless of the payout scheme, NiceHash is in the lead when it comes to making mining simple and profitable. Anyone can easily try mining blocks on the blockchain - even without owning any hardware - by renting hashpower with EasyMining. Moreover, among other benefits, miners on NiceHash often earn more than mining on a pool due to the nature of the hashpower marketplace, and they don’t even need to worry about penalties for disconnecting.