Merged Mining And How It Works

Merged mining refers to a process that enables an individual to mine more than one cryptocurrency simultaneously without compromising on computational performance.

Crypto mining is a highly lucrative activity. With the right computing equipment, you can begin mining Bitcoin, Monero, Ravencoin, Dogecoin, Ethereum Classic and several other prominent cryptocurrencies. Sure, the upfront cost of buying the required graphic processing unit (GPU) or application-specific integrated chips (ASICs) can weigh in on your wallet. However, you can quickly recoup the investment after the mining rewards come into your wallet.

However, what if there was a way to mine multiple cryptocurrencies simultaneously using the same mining equipment? That would significantly increase the potential payout without additional investment in mining equipment. It sounds nearly impossible, but that’s exactly what merged mining refers to. But what exactly is merged mining, and how does it work? Tag along to find out.

What is merged mining?

Merged mining refers to a process that enables an individual to mine more than one cryptocurrency simultaneously without compromising on computational performance. This is possible through a consensus mechanism known as Auxiliary Proof of Work (AuxPoW).

AuxPoW works on the simple premise that the work done on one blockchain can be accepted as valid work on another chain. The concept became popular in 2010 when the founder of Bitcoin, Satoshi Nakamoto, hinted at the possibility of miners participating in the proof-of-work consensus mechanism of two blockchains simultaneously.

How does Merged Mining work?

To successfully implement the merged mining process, both blockchains must use the same hashing algorithm. For example, the algorithm used by Bitcoin is known as SHA-256, while Ethereum Classic uses the KECCAK-256 algorithm.

If a miner wishes to mine a coin alongside Bitcoin, they must find another coin that uses the SHA-256 algorithm. The same goes for Ethereum Classic too. To mine a cryptocurrency alongside ETC, the other currency must use the KECCAK-256 algorithm.

In addition to the hashing algorithm, many smaller technicalities must also be implemented properly. However, it must be noted that in this process of merged mining, the parent blockchain does not undergo many technical modifications. It is the auxiliary blockchain that must be effectively programmed to receive and accept the work done by the parent chain.

Moreover, it is imperative to initiate a ‘hard fork’ if the blockchain is willing to provide or remove the support necessary to conduct merged mining. A hard fork refers to a major update to the protocol of a blockchain network. After the hard fork, the blockchain splits into two; the new version follows the protocol update, and the older chain continues to function as it did before the update.

The first implementation of merged mining occurred in 2011 on the Namecoin blockchain, when support for the SHA-256 algorithm was added to the network.

Benefits and risks

One of the benefits of using merged mining is that it can reduce the chance of a 51 percent attack on the auxiliary blockchain. The explanation is simple, thanks to the increased earning potential, auxiliary chains that support merged mining will attract more miners. The more miners there are on a network, the harder it is to orchestrate a 51 percent attack.

A 51 percent attack refers to an exploit where one miner or a group of miners comes to control a majority (51 percent or more) of the nodes on the network. However, many developers presented a counterargument to this benefit. They stated that if a large mining company participates in the mining activity of a small auxiliary chain, it may easily orchestrate a 51 percent attack.

Another obvious benefit of using merged mining is the effect on carbon footprint. The energy consumption of cryptocurrency mining has led to complicated and never-ending discussions, with powerful opinions across both ends. However, merged mining at least does not add to the ever-increasing carbon footprint in the world.

However, some miners argue about the issue of maintenance in merged mining. While it does not require additional processing resources, it does require extra maintenance to mine two or more assets on a mining rig.

In conclusion

Merged mining is an interesting and exciting concept. It allows young blockchains to achieve quick growth and security while offering miners an added revenue stream. However, not many blockchains have adopted this concept due to its perceived security risks. Perhaps, with some improvements, we could see merged mining being implemented more often in the future.