What Is Merged Mining?

Cryptocurrency mining is a broad subject, with many different facets. There are a number of different ways in which mining can be done, ranging from traditional dedicated hardware mining, like the ASICs, GPU mining, cloud mining or web browser mining, to name some.

However, a very interesting and less known concept is the one of merged mining. This process entails the mining of two coins that are based on the same algorithm, simultaneously. Basically, merged mining allows a miner to mine on more than one blockchain at a time. The added benefit to this is that the miner will contribute to both of the blockchain’s hashrates, hence increasing their security (lower threat of a 51% attack) and functionality.

Satoshi Nakamoto himself has written on the subject, in this Bitcointalk post from 2010 regarding Bitcoin specifically, saying:

I think it would be possible for BitDNS to be a completely separate network and separate block chain, yet share CPU power with Bitcoin. The only overlap is to make it so miners can search for proof-of-work for both networks simultaneously.

The networks wouldn’t need any coordination. Miners would subscribe to both networks in parallel. They would scan SHA such that if they get a hit, they potentially solve both at once. A solution may be for just one of the networks if one network has a lower difficulty.

I think an external miner could call getwork on both programs and combine the work. Maybe call Bitcoin, get work from it, hand it to BitDNS getwork to combine into a combined work.

Instead of fragmentation, networks share and augment each other’s total CPU power. This would solve the problem that if there are multiple networks, they are a danger to each other if the available CPU power gangs up on one. Instead, all networks in the world would share combined CPU power, increasing the total strength. It would make it easier for small networks to get started by tapping into a ready base of miners.

Perhaps the most discussed examples of merged mining are the pairs Bitcoin & Namecoin and Litecoin & Dogecoin. In a merged mining process, there always has to be a parent blockchain and an auxiliary one.

This process does not require any additional computing power from the miners, which is a big advantage.

First, a block of transactions for each chain has to be assembled. The next step is simply starting to mine. During the process there are 3 possible outcomes:

• Mining a block at Bitcoin’s difficulty level. You receive both mining rewards.
• Mining a block at Namecoin’s difficulty level. You only receive the Namecoin mining reward.
• Mining a block between Namecoin’s and Bitcoin’s difficulty level. Same outcome as scenario number two.

The biggest disadvantage of implementing merged mining is that within the auxiliary chain, there is implementation and development work involved and when switching, a hard fork is needed.

Overall, merged mining benefits miners, not so much investors, however it does offer other perks like increased security for the actual networks. Could be the perfect approach for new projects, in terms of protecting themselves from a 51% attack for example. It is an interesting implementation which more people should be aware of.