Today’s topic is relatively straight forward, but it is a very interesting blockchain technology. Merged mining allows a smaller crypto to leverage the mining power of a larger, more established one. There are of course benefits and drawbacks to using this kind of approach, but there are some cryptos out there using it, so it’s a good thing to be at least a little knowledgeable about.
For the usual disclosure, I am not a financial advisor, I don’t even work in finance at all. My day job is as a telecommunications software engineer. Treat everything you read here as some educational resources and not financial advise.
How Merged Mining Works
Merged mining is basically being able to mine two or more cryptos at the same time, using the same hashing power. Using a process known as Auxiliary Proof of Work (AuxPow), the miner uses their hardware to mine blocks on multiple blockchains at the same time.
The auxiliary blockchain must be designed in a way that supports merged mining, but the parent does not need to be modified in any way, or otherwise have specific support for it. However, both blockchain must be using the same underlying encryption algorithm in order to be able to be merged mined together.
Let’s use two theoretical cryptos as an example, WingnutCoin, which is going to be our parent coin, and NinjaCoin, which is going to be our auxiliary. The miner will first assemble a transaction set for both blockchains. Then it assembles the block for NinjaCoin and generates an algorithmic hash of it. It will then create a WingnutCoin transaction transaction that contains this hash, and creates a block with it at the tip. Once it has the two blocks assembled, it hands them off to the work units for processing.
If the miner solves the block at the WingnutCoin level, the block is added to the chain and shipped off to the network. The only thing that has been added to the block is the hash for the NinjaCoin block, and it is ignored. If the miner solves the NinjaCoin block first, it sends the block off to that blockchain with the corresponding WingnutCoin hash included as the Proof of Work component and added to the transaction chain.
Things To Note
Some important things to note about how this all ties together. First, the WingnutCoin blockchain doesn’t get all junked up with all the NinjaCoin transactions and all of that, all it would contain is the hash value stuck at the top of the transactions, so it really doesn’t cause all the much extra overhead on the parent blockchain.
On the NinjaCoin chain, the blocks would contain the extra header and hash from the WingnutCoin blockchain that is being used as the Proof of Work (PoW), so there would be a bit of extra overhead on that blockchain, but that is marginal compared with some of the benefits of using merged mining.
There are a number of cryptos out there using merged mining setups. Most notably would be Dogecoin (DOGE) being merged mined with Litecoin (LTC),
Benefits Of Merged Mining
There is a very clear benefit to the auxiliary crypto to be merged mined from a well established parent one. A lot of the miners would want to get on board with mining for the other cryptos, as the overhead to them is very marginal, but they get the benefit of potentially winning blocks in multiple cryptos.
This draw of the extra miners from the parent would increase the security and stability of the auxiliary blockchain’s network, as well as help ensure decentralization. This should also help prevent any 51% attacks from occurring on the auxiliary blockchain.
This is, of course, contingent on the fact that there is widespread adoption from the miners to actually do the merged mining. If only one of the major pools jumps on board, this would of course make it far easier for one of them to perform this kind of attack. As usual, it’s important to Do You Own Research and ensure that there is well spread out mining going on before you start throwing money or hardware at one of these merged mined cryptos.
Merged mining can be a very useful approach for a smaller alt-coin, providing they can get the mining pools on board with mining for it, but really, for a miner it’s just a chance at extra money, so for the most part, this is not really an issue.
It’s probably not the best approach for a crypto that is doing a lot of heavy lifting on their own block chain, with things like smart contracts and the like, and with the ever growing adoption of the Proof of Stake (PoS) consensus method, it may not be a technology that gets widespread usage in the future.
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Originally Posted On My Website: https://ninjawingnut.xyz/2021/06/11/merged-mining/