Bitcoin’s security stems from the vast computing resources of many participants called miners. These participants contribute their computing power, called mining power, and the system rewards them with Bitcoin. We assume that the miners follow the honest mining protocol, and therefore the payoff of a miner is proportional to its ratio of mining power out of all mining power in the system. Reward distribution occurs as blocks are discovered with proofs of work, and each miner produces proof of work with probability proportional to its mining power.
Bitcoin gives out a block reward, 25 BTC as of today, every 10 minutes on average. This means that a miner whose power is a small fraction of the total mining power is unlikely to win in a very long time. Since this can take years, miners congregate in pools. A pool has a manager, and whenever a participant in the pool finds proof of work, the reward goes to the manager, which distributes it among the participants according to their contribution to the pool.
In order to estimate the effort exerted by its participants, the pool manager receives from its miners not only the full proofs of work that go to the Bitcoin system, but also partial proofs of work. Partial proofs are similar to full proofs, but are much easier to produce, so small miners produce them at a sufficient frequency to allow a good estimate of their power. These partial proofs of work enable the pool manager to make sure that a miner indeed put effort into working on behalf of the pool, as a miner would naturally discover them during the effort to find a full proof of work, and they demonstrate just how much effort that miner put into discovering a solution.
Many of the pools are open pools. They have a public web interface where miners log in to register. After registering, miners point their mining hardware to a designated server and receive mining tasks. They send back to the server partial proofs of work as well as full proofs of work, and the pool manager credits their account based on their contribution and the pool’s revenue.