 How do mining pools work? How do the miners split the rewards? How does a participant certify that he, she is really contributing a certain amount of hash rate if one of the miners of the pool finds a good nuns? What prevents them from being selfish? All good questions. Let me compress them and answer them in one way, which is how do participants in a pool share rewards in such a way that reflects their actual effort without allowing them to cheat. That's basically what all of these things boil down to. And the way this is done is through proof of work. But proof of work with a lower difficulty. Let me give you a real world analogy that you can use to understand how this works. Now, as you know, the pool participants are hashing a block header. That block header, in order to be valid and to participate in the pool, must include a coin-based transaction that points to the pool for the reward. And so when the participants in the pool are hashing, when they find a nuns, they find a nuns to a block that hands the coin-based transaction that gives the reward to the pool. They can't change that. If they change that, the header changes and all of the mining they've done is pointless. They haven't found a valid nuns because that was for a different header with a different transaction with a different reward. But how do we know that they're mining that? And how do we know how much they're mining? Let me give you the real world example. Let's say that we're doing this with dice and you have four dice, right? And so four dice, each of which is just normal dice, one through six and you're casting dice. Now, the difficulty for the Bitcoin blockchain is such that you have to get less than, let's say, a 10. Anything less than a 10 and you have proof of work. That's the difficulty target for the Bitcoin blockchain. And so people are casting their dice and they're not getting less than 10. You know, they're getting between 10 and 24, which is by casting four dice of six is the maximum amount. They need to get less than 10. What would do that? Well, four twos would do that. Three twos and a three would do that, etc. But they're not. They're casting. Now, what the pool operator does gets them to cast the dice as they are, but says, we will accept any answer that is less than 15 as valid for pool rewards. Now, an answer less than 15 doesn't get you a correct proof of work for the Bitcoin blockchain, but it is enough to get pool rewards. So if you keep casting, if you get a 14, that qualifies you for a pool reward, but it doesn't qualify the whole pool for a valid block, but you can prove that you cast a 14 because you can show the nonce that gave you that difficulty rating. It's less than 15. So you collect a small share. Now, if you happen to cast a nine, then that qualifies for a pool reward because it's less than 15 and also it's a winning result. So you actually win for the entire pool. So by giving you rewards only when you cast less than a 15 and binding that to a Coinbase transaction that rewards the pool, we know that all of the work that you're doing to earn a share of the rewards is with the correct reward in your Coinbase transaction and we can calculate how often you're casting dice simply by calculating the probability of you getting less than a 15. So all that a pool does is it sets two different difficulty rates. This is the difficulty rate. You have to come below in order to participate in the reward. So get a share of the reward from the pool and this one down here is where everybody wins. And if you get below that, you get both a share of the reward and the whole pool wins. And then that winning is distributed depending on how many shares of the reward people got by getting below the pool target. So this allows people to participate and they can't cheat. They can't cheat because they have to show proof of work in order to participate in shares. Proof of work that is not sufficient to win the block reward for the blockchain but is sufficient to win a share. And that's how it's done. It's an interesting little trick and once you understand it it makes sense suddenly how mining pools can work. It's a pretty good system. Hi, thanks for watching the video. I'm Andreas Antonopoulos. I'm the author of Mastering Bitcoin, Mastering Ethereum, and the Internet of Money series. If you'd like to support my mission of bringing education about Bitcoin and open blockchains to as many people as possible under open free Creative Commons licenses, please consider subscribing to my channel and supporting me on patreon.com slash a-a-n-t-o-n-o-p. Thank you.