Merged mining is a mining process that allows a single miner to mine blocks on two or more different blockchains. Miners are then able to simultaneously mine two or more different cryptocurrencies. The concept of merged mining is linked to the implementation of the Auxiliary Proof of Work (AuxPow) protocol.
This protocol allows work that has already been done by protocol Proof of Work (PoW) to be used in another network. AuxPow started to be used in the Bitcoin and Namecoin blockchains because both networks operate under the SHA-256 hashing algorithm. The fact that they share the same algorithm is important to implement the protocol, otherwise, it will not be possible.
How is this possible, if each blockchain is different?
Indeed, the blockchains of each cryptocurrency are different and do not cross through each other. To make this crossover possible, we need miners to make use of the hash rate in order to create a valid hash for both networks.
Therefore, to make merged mining possible, the cryptocurrencies must share the same hash algorithm, as we mentioned before. The connection makes it possible to mine both chains using the same hash calculation.
Let’s remember that the hash is a cryptographic function or cryptographic algorithm that transforms data by generating outputs from inputs, while the hash rate is the unit of measurement of the overall power (or capacity) of the network processes.
A miner can use its computational power to generate different hashes and check them on different blockchain networks. If a hash is invalid on the Bitcoin network, the miner can try to validate the same hash on other net, such as Namecoin.
If Namecoin’s block is validated, he will receive his reward. In the same way, if the hash validates on both blockchain networks, the miner will receive both rewards. Creating a favourable situation for the miner, who would receive a higher reward using the same hash.
How does merged mining work?
The process is not easy, so we’ll try to explain it as simple as possible. After the creation of Auxiliary Proof of Work, users began to research how to extract hashes and validate them on two or more different blockchain networks.
This is how the developers managed to create this mining protocol, that would approach all the computational power on multiple chains, in a simultaneous way. For this to be possible networks that work at the same time, must have the same mining algorithm.
In all mining scenarios, there is a parent blockchain and an auxiliary blockchain; the last one depends on the parent blockchain. The parent blockchain will function as the main blockchain. Both work at the same time.
Through the parent network the miner performs the calculation and mining processes, and the auxiliary network accepts the processes of the parent as proof of work to mine the blocks of its own network.
The main network must always support the input of arbitrary data in the headers of the mined blocks, and the auxiliary network must incorporate a verification process to show that the mining work has been done on the main blockchain.
This happens frequently in the Bitcoin network (parent blockchain), where Namecoin acts as an auxiliary net by accepting the work of the parent blockchain as valid. We can therefore say that an auxiliary network benefit from the mining power of a parent network.
The data contained in a block of a main network is the same as the data of an auxiliary network block. The only difference is that the Auxiliary Proof of Work protocol adds useful information for the operation of the protocol and the auxiliary network.
Generating a block in an auxiliary network will only grant us the reward of this network and not of the main network (or both) as the difficulty level is lower. To obtain both rewards, the block must be validated on the main network, and the main network must be compatible with AuxPow.
We might think that, in order to mine blocks on different blockchains, more computational power would be needed, but this is not the case. This form of mining is not affected by the power of the mining equipment.
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