What is cryptocurrency mining, we covered already in this article. Today we are explaining what is merged mining, and how you can mine crypto across different blockchains, at the same time.
Merged mining debunked
Merged mining allows a miner to mine on more than one blockchain at a time. The advantage is that every hash that the miner makes contributes to the total hash of two coins and therefore they are all secure. This process is the practice of using work done on one blockchain (parent) and one or more auxiliary blockchains and accepting it as valid on its own chain, using proof of work (AuxPoW). In this relationship, two blockchains need to trust each other to work as their own alone. Blockchain parents don’t need to know about the AuxPoW logic, because the blocks that are placed on it are always blocks.
The only confusing explanation is how the same hash can be stored on both blockchains. I will use the example of Bitcoin and Namecoin, where Namecoin supports merge mining and Bitcoin does not, to further explain this process.
Example of merged mining
First, the miner must compile the transaction process for the two blockchains. It compiles the last Namecoin block and its hashes. It creates a transaction with this hash that is valid on the Bitcoin chain and adds it to the Bitcoin transaction set at the end of the tree. Further, the miner collects the last Bitcoin header that this transaction sends to users.
If a miner solves the hash on Bitcoin’s difficulty level, a Bitcoin block is compiled and sent to the Bitcoin network. The Namecoin hash does nothing and is ignored by the Bitcoin network. If a miner resolves the hash to the Namecoin difficulty level, a Namecoin block is compiled. It includes the Namecoin transaction base, the Namecoin header, the main Bitcoin block, and the hashes of other transactions on the Bitcoin block. All this “mess” is kept in the Namecoin system.
The Namecoin system, which supports fused mining, accepts this as proof of work because it has a function that must be done when the main block and the Namecoin transaction structures are created. Because you can not create a Bitcoin transaction set that has this hash, the Bitcoin header is stored, without this information. Therefore, it shows that work has been done.
Note that a miner can fix both threads at the same time, they will do it if they fix it on a higher difficulty. One block can “win” on the public chain and the other cannot. They are completely independent – only the mining operation is connected. Three points to remember:
- The Bitcoin chain is not connected to the Namecoin due to the combined package. Most of all, a small hash is put into the transaction tree. These two hash chains are still completely independent.
- The “Bitcoin stuff” that goes into the Namecoin tree is basically ignored and used only to support the proof of work. This will slow down the Namecoin chain a bit as it means that some blocks will have more headers and additional hashes.
- Finally, no special support is required from Bitcoin.
The benefits for Namecoin are clear. Many Bitcoin miners can do a bundle because it costs them next to nothing and gives them a better return than mining bitcoins alone. As a result, the generation time they prevent them will be visible and their business is protected against so-called 51% attacks.
Reward distribution in merged mining
We will use Bitcoin and Namecoin as examples. Bitcoin will be the parent blockchain, while Namecoin will be the subsidiary blockchain. The first step is to create a block of transactions for each chain. The next step is to start digging. Note that the two chains will have different hardness levels, and the main chain is the second highest. Here, three different situations can happen:
- If you get a block at the parent chain’s (Bitcoin) difficulty level: you get two rewards.
- If you mine a block in the Auxiliary Chain (Namecoin) difficulty level: you get a reward, a Namecoin mining reward.
- If you exploit the block between the parent’s hardness level and the auxiliary chain: you will get a reward.
It is important to note that pooled mining does not require additional computing power from miners, which is one of its biggest advantages.
Disadvantages of merged mining
Some of the disadvantages associated with this mining are:
Blockchain support for mining integration requires development work. A hard fork is required when transitioning from one protocol to merge mining.
More maintenance effort: Merge mining does not require any additional computing power, but it does require more maintenance effort. Mining two blockchains require additional work compared to mining a single blockchain.
We were surprised to find out how popular merge mining has become among Bitcoin miners in recent years. Specifically, as miners don’t just use one scheme, they adopt multiple systems and potentially use more software, which could theoretically go wrong and cause problems. Each Coinbase transaction contains commitment hashes for many alternative blockchain systems, sometimes up to four or five. Given the high level of adoption among Bitcoin miners, this could lead to further security concerns for some.
For example, complex or resource-intensive merge mining schemes that miners may need to run to remain economically competitive could increase the pressure to centralize mining. In addition to this, it is possible that bugs or chain reorganizations on these alternative blockchains could cause problems in the main chain; however, as long as the software systems are well implemented, this risk should be minimal.
The blind merged mining schemes mentioned above appear to mitigate most of these security risks and therefore the adoption of these newer systems may be desirable. However, it is unclear whether there is a significant incentive to upgrade to these blind systems. At least for now, we haven’t seen any evidence that these alternative merge mining chains represent a significant portion of block rewards, so the security risks associated with this type of mining are likely to be somewhat limited in practice.
At the same time, we haven’t seen any evidence that merged mining is causing Bitcoin problems. However, in my opinion, it is worth monitoring the situation closely.