A Complete Guide to Cryptocurrency Merged Mining

Beginner’s Guide / 10.07.2020

Multitudes are buying into the use of blockchain technology and cryptocurrencies over time. Miners usually get a harder time competing with other miners to get the chance to add a block to the chain. However, the evolution of the technology ensures there is something for everyone while reducing the congestion that is piling in primary blockchains. The issues brought about the introduction of sidechains to increase the functionality of the primary chains.

The development of sidechains is making the concept of merged mining popular. Merged mining, also known as Auxiliary Proof of Work (APoW), is where a miner can mine two different digital coins. It enables the miner to utilize more than one blockchain at the same time. When one does this, they contribute to both chains’ total hashrate, increasing both chains’ security.

The technology requires the two chains to share the same Proof of Work consensus algorithm. The concept around merged mining developed to settle chain integrity attacks for younger chains before achieving adequate hashrate to support their security. It would be best to note that there is no compromise by increasing computational power and reducing both chains’ performance. 

How Does Merged Mining Work?

It is vital to know the basics of the process to understand how merged mining works. 

Merged mining requires the presence of the parent blockchain and secondary chains. They have to share a Proof of Work consensus algorithm, enabling miners to produce blocks in both chains. 

Mining occurs in the parent chain, which is oblivious to the secondary chains and their mining. Despite this, the secondary chain is dependent on the main one for additional security since it has a higher hash power. It also needs extra input to validate the mining in the parent chain. All blocks submitted to either of the blockchains are different.

The Merged Mining Process

To begin with, the miner has to obtain transaction sets from the mining pool for both chains. The miner creates a transaction hash, which they add to the parent block header, which it ignores. Therefore, the parent chain contains both hashes of its transaction and the auxiliary block transaction, while the secondary chain contains only its transaction hash.

Next, the work is distributed through both chains to allow other merge miners to solve Proof of Work’s difficulty levels.

Three different outcomes are possible while solving the difficulty level. The first involves the miner achieving a difficulty level higher than both the parent and auxiliary chains. The miner will then get rewards for both the main and the secondary chains. 

The second outcome involves solving a lower difficulty level that is adequate for the secondary chain. In this case, the miner will receive rewards of the auxiliary chain only. 

The third situation is whereby the miner achieves a difficulty level too low for both chains. The miner then requires to enter a new nonce value to continue solving the problem until they acquire a difficulty level adequate for either chain.

Impacts of Merged Mining to Investors

Merged mining is more beneficial to miners than to investors. It provides them with a better chance to earn more without high competition. However, it offers great potential for investors in the future with the development of technology.

A few scenarios may occur with chains establishing merged mining. Merged mining can have a boost to a coin’s worth immediately after incorporating the APoW algorithm. In this case, we can look at the Litecoin-Dogecoin merger. A well-established currency provides a platform for a new coin to gain popularity among people. Eventually, short-term investments may work for them.

Other coins have the potential to gain popularity in the future as their development is still underway. Once their merging with a parent blockchain occurs, their value has a high chance of spiking. Nonetheless, it is vital to survey all logistics surrounding them before initiating investments to avoid losses. 

Some chains have the potential to lose their value with time making them undependable for long-term investment goals. A good example is Namecoin, which lost its value, and the rate of adoption up to date is still low.

Benefits and Drawbacks of Merged Mining

Advantages

  • Power Efficiency: The joint mining between a parent chain and auxiliary chains does not increase the computational power required for the process. You can owe this fact to the process being simultaneous in both chains.
  • Auxiliary Chain Recognition: Since the secondary chain is relatively new compared to the main chain, it can gain popularity. Hence, their value has a chance to increase, which is significant for their growth.
  • Security: The security of both chains heightens with the mining contributing to both their hashrates. Furthermore, the auxiliary chain, which would be more susceptible to attacks, uses the main chain’s higher hashpower to boost security.
  • Increased Fluidity: The chains are faster since miners clear blocks rapidly. They also can choose the coin of their choice, making sure they are not limited to one.

Disadvantages

  • New Attack Vectors: Miners can launch attacks without affecting both chains’ financial status by mining empty blocks.
  • Operational Costs: Setting up a merged mining network is expensive and time-consuming. It raises the question if the process is necessary.
  • Auxiliary Chain Issues: They may be overdependent on the main chain affecting its functionality. Further, miners may not have faith in the ability of the auxiliary chain to develop.

Popular Merged Mined Pairs

Below are a few of well-known merged mined pairs in the world today.

  • Litecoin and Dogecoin: The merger was launched in July 2014 to the Dogecoin crypto mining network since it was unsustainable.
  • Bitcoin and Rootstock: This merger aimed to increase the scalability and functionality of the Bitcoin network. It also increased the rewards miners get from mining on both chains.
  • Bitcoin and Namecoin: It was the first Bitcoin merged mining project. It increased the market cap of Namecoin in a short period. However, Namecoin’s value plummeted and has since been struggling to pick up. 

Conclusion

Merged mining holds a bright future for blockchain technology. The process that enables mining on two or more chains has great advantages to the chains and miners as well. It will help auxiliary chains boost security, exposure, coin value, and functionality, among others. 

People raise questions about whether it is worth investing in or not due to a few issues that come along with it. The complicated process is yet to improve in many ways and give investors a chance to see endless benefits that come along with it. Nonetheless, the outcomes of the existing merger pairs will tell in the long run.

After realizing the setbacks of centralization in the financial industry, Carol has dedicated her career to apprise everyone on the benefits of blockchain technology. When she is not writing, she’s probably somewhere in the park reading a book.