What is Merge Mining?

The low-key tech of crypto, people outside of crypto don’t know about.

For those who have been in the mining business for a while, there are more than just specialized computers generating random numbers through SHA256 to win a lottery. If you would like a primer and refresher on what SHA256 is, please check out our previous blog on this topic here. A spawn of different types of mining methods and technologies have been born to accommodate miners that are seeking more…money! The more you mine, the more you increase your chances of block rewards. It’s simple.

The advent of different bitcoin forks has been a big factor as to why we have numerous mining technologies such as FIBRE, BetterHash, Stratum, Mining Derivatives, Hash Rate contracts, Cloud Mining, and much more. But it’s the growth of bitcoin merge mining that will be the focus of this blog topic.

In its simplest meaning, merge mining allows a miner to use their hashrates in mining multiple currencies that utilize the same mining algorithm. Merge mining, which is also called auxiliary proof of work, essentially allows a miner to have a chance in earning block rewards from separate networks. Merge mining requires having a primary coin and a secondary coin. The primary coin is the main network you are hashing on with the secondary coin being the additional network you are attempting to mine.

In the normal single coin mining, a miner is submitting a hash of a block header which is less than the public difficulty target number. This process is repeated over and over again until a miner finds a winning hash. In the context of merge mining, the primary coin’s block header hash includes a transaction, which contains a hash of the merged mined secondary coin’s block header.

Most mining pools support merged mining allowing smaller miners to merge mine, without them even knowing. The pool will just automatically include the secondary coin’s block header.

Into detail of how it all works

It all starts with a miner choosing a primary chain and a secondary chain. Let’s say if the miner chooses bitcoin as the primary chain and Litecoin as the secondary chain. The miner will then first start assembling blocks for both sets of chains, bitcoin and Litecoin. When the miner finished assembling a Litecoin block, the miner will hash the block and insert this particular hash into the assembled bitcoin block as a transaction. This transaction containing the Litecoin block hash is valid in the bitcoin block and doesn’t affect anything.

If the miner solves a bitcoin block correctly, they will get the reward from the block’s coinbase award and be able to finalize that block. The Litecoin hash and block will just be ignored. But if the hash also is an eligible hash for the Litecoin difficulty target, then the miner will also be awarded that Litecoin’s block. The miner will then need to include that bitcoin’s block header in Litecoin’s block header. Including the bitcoin’s block header, which includes the winning hash of the Litecoin block, is proof that work was done to submit a winning hash.

The amazing thing about this whole process is that Bitcoin nor Litecoin are affected. Maybe those blocks have a bit more data inserted into them, but besides that, both chains are running normally without the primary chain knowing about anything.

Merge mining itself has evolved over the past few years to take advantage of nuances and profit maximization opportunities. There are also slightly nuanced variations of merge mining. For example, there are regular merge mining and blind merge mining. Regular merge mining is conducted by Bitcoin miners, while blind merge mining can normally be conducted by anyone, who then pays Bitcoin miners in fees.

Other variations include Scrypt merge mining and blind merged mining with covenants.

In terms of economic incentives, miners will be incentivized to mine all blocks that are eligible for merge mining processes. In some way, these chains receive more miners and more hashrate competition, essentially helping network activity. Although some may market themselves as more secure because of the increase in hashrates, this is up to debate.

The mining space is complex and advanced as miners have developed more complex ways to efficiently mine coins. We hope this piece on merge mining is an educational piece for you to learn about different emerging technologies in the mining space.

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