PROP vs. PPLNS vs. PPS Mining Pool Reward Systems
An overview of the most common reward systems.
Mining pools consist of many miners pooling their resources to earn their expected rewards at a faster average interval than would be possible alone. How a pool determines the rewards it pays to its miners depends on what reward system it uses. Most pools use one of the payout systems we will visit here.
Proportional is the simplest reward system. Rewards come from “rounds” – the time between one block found by the pool and the next. You are rewarded for the shares you submit in proportion to all shares submitted during each round.
For example, if the shares you submit during a round account for 50% of the total shares, then your reward is 50% of the block reward.
The proportional system is the easiest reward system to understand and implement.
Proportional works fine when the miners mine continuously. However, it's vulnerable to miners that strategically enter and exit the pool to unfairly increase their earnings at the expense of the continuous miners. These strategic miners are known as “Pool Hoppers”.
Pool Hoppers take advantage of the fact that the value of shares decreases the longer the round lasts due to inflationary effects. When a new round starts, pool hoppers will mine the beginning of the round when the shares are worth the most. When another pool finds a block, they then switch to the other pool to mine the beginning of its next round.
In this way, they maximize their earnings from quick rounds and minimize effort spent on lengthy rounds. Since mining is a zero-sum game, a miner who earns more than they should relative to other miners in the pool means other miners in the pool are earning less than they should.
Since blocks are found randomly and miners are rewarded directly from blocks found, the pool's luck will affect the miner's earnings variances. The earnings will still average out to the expected with enough blocks and time.
Since shares reset at the beginning of each round, it’s possible to receive less or no reward at all if a round ends before you’ve had a chance to submit enough shares to accurately represent your hash rate. It’s also possible to be one of the few or the only miners to submit a share in a round.
With enough blocks and time, the earnings will average out to neutralize the variance. The problem is its an additional luck-based variance added on top of the luck of finding a block and the luck of finding shares that cause earnings per round to become more unstable.
PPLNS stands for Pay-Per-Last-N-Shares and is more complicated and difficult to implement than Proportional but it solves some of its main problems.
The payments of PPLNS are based on rounds just like in Proportional. However, PPLNS does not consider the boundaries of the start of the round or previous rounds when selecting which shares will be considered.
PPLNS works by selecting shares backwards starting from when a block is found and ending after shares add up to an amount called “N”, or the PPLNS "window". Typically, the network difficulty determines this N amount.
Each miner is rewarded proportionally from the shares that are selected by the PPLNS window. For example, if a miner's shares account for 50% of the shares in the PPLNS window, then the miner will receive 50% of the block reward.
The shares used to calculate rewards are not bound by the start and finish of rounds like in Proportional systems, so the considered shares can extend into previous rounds or be less than the total shares of the current round.
PPLNS causes earnings to be fairer by making pool hopping ineffective without punishing intermittent miners. Since the beginning of the PPLNS window isn't known until the end of the round, pool hoppers cannot predict when they should begin mining and when to stop. It's even possible for a pool hopper to earn nothing at all from a round.
Since shares don't reset to zero at the beginning of each round like in Proportional systems, earnings from PPLNS rounds tend to have more stable earnings. You won’t experience less or no earnings due to the duration of the round.
With less cheating and typically low fees, PPLNS pools tend to earn more than other payout systems when measured over long periods.
Like Proportional systems, miners are rewarded directly from blocks found, and so the short-term earnings variances will be affected by the pool's luck. The earnings still average out to the expected with enough blocks and time.
PPS stands for Pay-Per-Share. In a PPS pool, miner rewards are not derived from rounds. Rather, the mining pool operator buys shares from the miners at a rate that reflects the share's expected contribution towards finding a block according to network difficulty.
Since miner rewards don't depend on the randomness of finding blocks, PPS reduces the earnings variances down to the randomness of finding shares, which is negligible. The earnings tend to be much more stable and predictable in short periods compared to other reward systems.
Miners in a PPS pool are not vulnerable to pool hoppers since miners are paid for shares rather than by rounds.
Rather than sharing the earnings risks among the miners and pool operators, a PPS pool operator is absorbing all the risks. This is why PPS pools typically have a much higher fee. Miners at PPS pools tend to earn less over long periods than at pools using PPLNS, and less than Proportional when cheating isn't involved.
Proportional can be problematic due to pool hoppers, but its simplicity makes it ideal for private and small pools.
PPLNS pools are ideal for miners who are seeking to maximize earnings and plan on mining for a long time.
PPS pools are favored by miners that are willing to earn less in the long term to get predictable rewards over a short period.
The best reward system is the one that works best for your needs.
Advanced Reading: Analysis of Bitcoin Pooled Mining Reward Systems - Meni Rosenfeld November 17, 2011