Definition: Merged Mining

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If you’ve been in the crypto space for a while, then you might know about crypto mining. The common methods used include; CPU mining, GPU mining, ASIC mining, and Cloud mining.  A less known way of mining cryptocurrencies is merged mining.

Merged mining also known as Auxiliary Proof-of-Work, is the process of mining two separate cryptocurrencies simultaneously. The process allows miners to mine on more than one blockchain at a time.

Here are two instances where this concept is referenced in the mainstream media:

  • “How Merge Mining and Anchored Blockchain Projects Capitalize on Bitcoin’s Security Model”

(Bitcoin News, September 21, 2019)

  • “Hathor Merge Mining Pool Commands 33% of the Bitcoin Cash Hashrate”

(Bitcoin News, October 12, 2020)

How Merged Mining Works

In the merged mining process, two blockchains are involved, the parent blockchain and the auxiliary blockchain. The parent blockchain is more established (Bitcoin), while the auxiliary blockchain is new or small (Namecoin).

For the blockchains to work together, they must share the same hashing algorithm. This means all involved cryptocurrencies must be using the same algorithm.

For example, Bitcoin uses SHA-256, meaning any other coin that uses SHA-256 can be mined with Bitcoin. One of the popular merged mining pairs is Namecoin and Bitcoin, which both use the SHA-256 hashing algorithm for mining.

Example of How Merged Mining Works

We will use Bitcoin and Namecoin as examples.  Bitcoin will be the parent blockchain, while Namecoin will be the auxiliary blockchain.

The first step is to build a block of transactions for each chain. The next step is to start mining. Note that both chains will have varying levels of difficulty, with the primary chain being the higher of both. As you mine, three different scenarios could play out.

  • If you mine a block at the parent chain (Bitcoin’s) difficulty level: you receive two rewards.
  • If you mine a block at the auxiliary chain (Namecoin’s) difficulty level: you receive one reward, Namecoin’s mining reward.
  • If you mine a block between the parent and auxiliary chain difficulty level: You receive one reward. Same outcome as the second scenario above.

Merged mining does not need additional computing power from the miners, which is one of its greatest advantages. 

Advantages of Merged Mining

There are a few advantages that come with merged mining.

Double reward: in merged mining, as a miner, you are simultaneously searching for proof-of-work on the parent and auxiliary blockchain. If you discover a block hash of the parent chain, you receive two rewards. This is because the block hash from the parent chain is used as confirmation for the auxiliary blockchain.

Increased security for Auxiliary blockchain: auxiliary blockchains are usually small and new blockchain projects. By leveraging the parent blockchain’s hashing power, a smaller blockchain can gain additional hash rates, increasing its security. Besides increased security, auxiliary blockchains can also gain exposure by being associated with more popular blockchains.

Disadvantages of Merged mining

Some of the disadvantages that come with merged mining include:

A hard fork is necessary: auxiliary blockchains need some development work to integrate merged mining. When switching from one protocol to merged mining, a hard fork is necessary. When switching from merged mining, another hard fork is required.  

More maintenance work: Although merged mining does not require extra computational power, it does require more maintenance work. Mining two blockchains require extra work when compared to mining a single blockchain.

Overall, merged mining has its advantages, from helping young blockchain projects grow to enhanced security for the networks. While many dispute the capabilities of this crypto mining method, many crypto projects continue to implement it, and its popularity continues to grow.

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