Merged Mining, as the name suggests, is the process of mining two or more cryptocurrencies at the same time, keeping the mining performance in mind. A miner can use their computational power to mine blocks on multiple chains through the use of what is known as Auxillary Proof of Work (AuxPoW). The main vision behind AuxPoW is that the work done on the blockchain can be leveraged as valid on another chain. The blockchain providing the Proof of Work (PoW) is called parent blockchain, while the other one hat accepts it as valid is known as the auxiliary blockchain.
There are certain specifications which need to be followed while going for merged mining, which are:
#1 All the involved cryptocurrencies in a merged mining process should be using the same algorithm. For instance, if you are mining Bitcoin, which uses SHA-256 hashing algorithm, you need to use any other coin with the same hashing algorithm.
#2 The parent blockchain barely has to go through any technical modifications, but the auxiliary blockchain needs to be programmed to receive and accept the work of the parent blockchain effectively. Addition or removal of support for merged mining requires a hard fork, typically.
#3 Merged mining is an interesting method for low-hash (small) blockchain to increase their security by leveraging the Bitcoin hashing power or another bigger chain. This might reduce the probability of a 51% attack if the miners agree to go for merged mining.
The miner builds a block for both the hash chains in such a way that the same calculation secures both the blocks. If a miner solves a block, provided the difficulty level of either or both the blockchains, the block is reassembled with the completed Proof of Work (PoW) and submitted to the exact blockchain. The second scenario is getting both the blocks reassembled separately.
Let’s take a simple example of Bitcoin and Namecoin, where the latter supports merged mining while the former doesn’t.
Firstly, the miner should assemble a transaction set for both the chains. After that, he assembles the Namecoin block and hashes it, and creates a transaction containing this valid hash, and inserts it in the Bitcoin transaction set. The next step is to assemble the final Bitcoin header with this transaction in it and eventually sends out the work units.
If the miner solves the hash at the Bitcoin difficulty level, then the BTC block is assembled and sent to the Bitcoin network.
If a miner solves the hash at the Namecoin difficulty level, the Namecoin block is assembled. This includes the Namecoin transaction set, the block header for both BTC and Namecoin, and the hash of the rest of the transaction in the BTC block. This is then submitted to the Namecoin system, which supports merged mining. The Namecoin system contains all the work that must have been done after the Namecoin transaction was built.
Note that the miner can solve both the chains simultaneously, and one block can win in the public chain. They are totally independent- only the mining is merged. Remember these three important points:
#1 The BTC chain doesn’t get junked up with Namecoin due to merged mining. At the most, only one tiny hash is inserted in the transaction tree.
#2 Both the hash chains remain really independent. The Bitcoin stuff that goes into the Namecoin tree is only used to validate the proof of work.
#3 Lastly, no special or extra support is needed from Bitcoin.
Some of the developers claim that merged mining provides a false sense of security because a relatively big mining pool, which is not dominant on Bitcoin, could possibly reach 51% hashing power on the smaller chain. But on the other hand, the counterargument is that if the rewards are good enough for the miners in the Auxillary chain, it might attract more miners, thus increasing security and reducing centralization.
Some even say that merged mining decreases security as the economic losses are removed from the entire process. For example, the Bitcoin miners can use their hashing power on even smaller chains without risking for Bitcoin mining rewards. This would lead to the miners being dishonest on the smaller chain.
RSK is one of the best platforms for merged mining in terms of rewards paid to the miners. The rewards are paid in Bitcoin itself, which comes from the transaction fees of the network. The miners will be at an advantage as they can earn up to 80% of the fees for completion of every block submitted to the network, including the uncle blocks. You can simultaneously mine RSK along with Bitcoin in this secure platform.
SlushPool enables you to go for merged mining. The Namecoin merged mining got published finally. You can get information on the block rewards, with the entire statistics of trading and mining. The Bitcoins for the traded Namecoin block finally gets distributed among the miners on the score-hash formula, used for Block rewards distribution. This has been in the market for a while now.
MMpool enables the miners to go for merged mining process, providing Pay Per Share (PPS) for the alternate mining coins. The coins liable for merged mining are- Namecoin, Devcoin, Ixcoin, Groupcoin. All the transaction fees are paid to the miners finding the block, with 1.5% fee for bitcoin rewards. The registration process is pretty simple, and you can go to their website to understand it better.
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Reference: Binance Academy