How do zero-fee pools continue operations?

[Steve Sokolowski]

Good morning!

Today, at the suggestion of a customer, I've been asking for Prohashing to be added to lists of pools at various websites. One of these sites has 163 pools (!) listed. When one sorts by "average fee," the fees listed are zero for at least half the listed pools. I don't see how a pool even with 1% fees can earn any money.

I was hoping that someone here might be able to help me figure out how a zero-fee pool remains in operation. Even if one wants to run an anonymous, illegal pool that pays no taxes, there are still costs for Internet service and servers (or for cloud hosting), network transaction fees, and so on. It takes hundreds of hours to make sure everything is running and to deal with problems in the middle of the night. Plus, bugs are one of the largest expenses we face - there are still edge cases that crop up that had been present for the entire six years we've been in operation. How can you cover the cost of bugs when you charge no fees?

Are these pools simply lying in their listings? Does anyone have any idea why there are so many pools operating without charging anything?

[ajs]

I don't see how a pool even with 1% fees can earn any money.
Does anyone have any idea why there are so many pools operating without charging anything?

While I have not done exhaustive research, I did look at this back when I started. The answer was they don't. They might have one product that had no fee's but it was not the product I wanted. I think that is called "bait and switch". Or they did an auto-mine and merge mine of a coin, but only paid you the base coin "value". Think if you had a product say that mined "Dash" for no fee- but you ran your automated process, and simply paid them as if it was "Dash". What turned me away from these, and why I stay here, is the transparency of how your pool works. I don't expect a pool to provide good service for free. I expect to pay a reasonable value for it. I will pay a bit more fee to get that service.

Are these pools simply lying in their listings?

You could easily create a "product" package that waved the fee, allowing you to place a 0% in that column of that web page - but I think just being listed and having us user's rate you will work better. I know I visited a number of the "too good to be true" sites and left very quickly once I saw the game. It is not unlike LiteCoinPool charging a negative fee. I know they are making money they just try to hid it. I would rather get the benefit of your automated process and pay you for it - where we are both incentivized - than have you get all the reward of it so only you are incentivized, and I don't know what is happening.

[CSZiggy]

Most make money on the merged mining backend as far as I've been able to tell.

Litecoinpool FAQ:
Where is my Dogecoin balance?
The pool does not keep balances for Dogecoin or any of the other cryptocurrencies that it merge-mines. All accounting is done in litecoins based on the current PPS ratio, which takes everything into consideration. Simply put, this means that instead of receiving separate payments in several cryptocurrencies, you receive more litecoins.

So even paying out 102%, if they are making 110% from the litecoins + merged mining, they still retain 8% of their total income for their fees and are still able to pass along 102% payout. As long as that 102% payout ends up being, from my experience, higher than I see on other pools then that is the pool I'd go with. Pretty web pages displays are nice, but my bank account doesn't care one way or the other. If I had to watch the output display all day in order to make the profit then it would matter. But this is more of a set it-forget it and I couldn't care if it was in ascii text or loaded with spaced lines and graphics, the profits earned at the end of the day was my main concern.

The 1st power of Prohashing was being able to mine the top coin at a given time, but if the base coin is mined most of the time anyhow then that loses some of its advantage.

The 2nd power of Prohashing is the ability to mine whatever coin you are able to mine on and request a payment in another coin so that you do not have to go to an exchange and sell one coin to get another thereby triggering a short-term capital gains tax. But if you plan to take the payout in the coin you are mining anyways, then the 2nd power of the pool is also diminished.

I suspect Prohashing has to account for losses. If I mine DASH and want a payout in Litecoins, there isn't a 1:1 translation of what I mined into what I earn. The 1 DASH coin I earned has to be sold, I'm guessing this is an instant sell (MARKET) instead of a future sell (LIMIT) which incurs 3-5% less profit from the selling of the coin. And then the coin I wanted my payout in has to be bought. Again instant buy (MARKET) instead of buying it down the road in the future (LIMIT) and that would incur an additional 3-5% loss. So when you add it all up, 3-5% fees from the sell, 3-5% fees on the buy side, and on top of it all (IF the pool fee is taken off what I am being paid out and not off the top of what I mined BEFORE the coins were bought and sold) another 5% for the pool fee. I think you can see how other pools are able to pay 11-15% higher because what is mined is paid and no losses have to be tacked on from the buy-sell as long as the coin you mine is the coin you want a payout in.