Mining alone means earning nothing for long stretches and occasionally receiving a full block reward. Pools convert that into regular income, and the method used decides who carries the variance.
Solo mining is a lottery with long odds
A miner's chance of finding any given block equals their share of total network hash rate, and for an individual that share is minute.
The expected return over years is the same as pooled mining, but the distribution is extreme, with most participants finding nothing at all.
No operation with monthly electricity bills can run on that distribution, because the gap between rewards is measured in years while the costs arrive every month.
Shares measure work without finding blocks
A pool sets an easier target than the network's and asks members to submit hashes meeting it. Each qualifying result is a share.
Shares prove work was performed even though they do not produce a block, and their frequency is proportional to the miner's hash rate.
Occasionally a share also satisfies the real network target, and that is the block the pool submits. The miner who found it gains nothing extra, because the reward belongs to the pool.
Shares are constructed so that the reward can only be paid to the pool's address, which stops a member from claiming a block for themselves after being paid for their work.
Payment methods allocate variance differently
Proportional schemes divide each block reward among the shares submitted during the round that found it, so income still depends on when blocks arrive.
Pay-per-share pays a fixed amount for every share immediately, which makes miner income entirely predictable and leaves the pool exposed to unlucky periods.
Pay-per-last-N-shares pays from actual blocks but weights recent shares, which discourages miners from switching pools mid-round.
Fees price the risk being transferred
Pools charge a percentage of rewards, and the rate reflects how much variance the pool absorbs under its chosen scheme.
Fixed-payment schemes carry higher fees because the pool is effectively insuring the miner against a run of unlucky blocks.
Transaction fee revenue is sometimes handled separately, which matters more during congested periods when fees form a large share of the total reward.
Comparing pools on headline fee alone is therefore misleading, since two pools quoting the same rate can pay materially different amounts depending on how they treat fees and payout thresholds.
Concentration is the structural concern
Pools decide which transactions go into blocks, so a small number of large pools construct most of the blocks on a network.
The hash rate belongs to members who can redirect it, which limits how far a pool can act against their interests without losing them.
Even so, block construction concentrated among a few operators is a different security picture from one where thousands of miners choose their own transactions.