Certified Bitcoin Professional Practice Exam

What advantage do mining pools offer over solo mining?

1. Increased anonymity.

2. Higher likelihood of finding blocks.

3. Reduced variance of payouts from mined blocks.

4. Lower transaction fees.

The correct answer is: Reduced variance of payouts from mined blocks.

Mining pools provide a significant advantage in terms of the reduced variance of payouts from mined blocks. In solo mining, an individual miner attempts to find blocks independently, which can lead to long periods of time without any rewards, especially given the increasing difficulty of mining. This variance means that while an individual miner may have the potential for high rewards, they may also face extended dry spells without any payouts, resulting in inconsistent income. By participating in a mining pool, miners combine their hashing power with that of others, increasing the collective chance of successfully mining a block. When the pool successfully mines a block, the rewards are distributed among all members based on the contributed hashing power. This model smooths out the income, as miners are more likely to receive smaller, regular payouts rather than infrequent large rewards, making their income more predictable. The other options, while related to mining, do not directly address the primary benefit of mining pools. Anonymity in mining pools does not necessarily increase, and transaction fees can vary regardless of mining method. Furthermore, while higher chances of finding blocks can be an indirect benefit of joining a pool, it is the consistent and reliable payouts that primarily attract miners to this approach.