Merged Mining On the Bitcoin Blockchain: What Is The Hype About?

Data & Research / 03.11.2020

On Nov. 2, 2020, a report by BitMEX highlighted the growing trend of merged mining on the Bitcoin blockchain. The exchange noted that about 90% of the BTC hash rate currently engages in the mining method.

The surprising popularity in merged mining in recent years means that BTC miners are not only using one scheme but adopting multiple systems and potentially using numerous pieces of software.

The merged mining process essentially incorporates a practice of using the work done for a parent blockchain on other child blockchains by implementing auxiliary proof-of-work (AuxPoW).

It also enables several projects to leverage existing computational resources on one resilient network other than running disjointed systems for separate blockchains. 

The auxiliary proof-of-work applies as assurance on multiple systems, where the child chain inherits some of the parent chain’s security characteristics.

Typically, there are two theoretical types of merged mining, namely regular and blind. Bitcoin miners are involved with regular merged mining, where the network incentivizes them to check the validity of blocks in both chains and get rewards in the native token of each chain.

On the other hand, any individual with computing resources can conduct blind merged mining; these third party agents are rewarded in BTC for the work and then pay transaction fees in BTC to the miners.

Benefits of Merged Mining

Merged mining is quickly turning into one of the most discussed topics among stakeholders in the Bitcoin network. The practice holds great potential in helping the BTC blockchain scale more sustainably

It can help reduce competition for miners among Blockchain projects by enabling them to deploy the same resources to diverse projects. 

Furthermore, the practice could help mitigate the risk of a 51% attack in new blockchains, which can entice BTC miners with the lure of extra revenue. 

It thus benefits miners on the Bitcoin network serving as the parent chain while also rewarding the miners that secure the network. It also offers a win-win scenario for the auxiliary chains that tap the established BTC network to drive their projects’ success.

Interestingly, Bitcoin’s creator Satoshi Nakamoto had outlined the idea of the mining method in a post on BitcoinTalk many years ago, proving that the inventor was way ahead of his time.

It Could Increase Mining Rewards

In a July 2019 report, Binance Research examined the Dogecoin project, hailed as one of the most prominent merged mining examples. 

The blockchain project integrated merged mining with Litecoin in 2014, resulting in a 1,500% spike in the coin’s mining hash rate. As of July 2019, Dogecoin derived almost 90% of its total hash rate from LTC mining pools. 

The Binance report noted that this mining could increase mining rewards following block reward halvings in both the BTC and LTC networks. 

One potential shortcoming of merged mining, as per the Binance report, is that miners may not be incentivized to support the child blockchain due to additional operations expenses.

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Wayne is a Blockchain enthusiast and expert in crypto trading. Currently, he covers trendy issues on digital currencies.