Is it possible to mine two cryptocurrencies at the same time
Merged mining or Auxiliary Proof-of-Work for technically more savvy people is the process of simultaneously mining two separate cryptocurrencies.
Although this technology is not as popular as the traditional Proof-of-Work and even Proof-of-Stake consensus algorithms, some projects have implemented unified mining based on more secure networks with growing popularity.
Although these theses were not included in the official Bitcoin documentation, Satoshi Nakamoto outlined the idea of joint mining on the Bitcointalk forum back in 2009.
Let’s take a closer look at how this innovative mining works, what it gives to projects that implement it, and how you can take advantage of the benefits of being an investor.
How does combined mining work
In each implementation of combined mining, there is an auxiliary chain and a more developed parent blockchain.
For collaboration, both chains must use the same hash algorithm.
To explain this process, we will consider one of the most popular pairs of combined mining – Namecoin and Bitcoin.
In this pair, Bitcoin is the parent, and Namecoin is the auxiliary chain, depending on the Bitcoin network. Both cryptocurrencies use the SHA-256 hash algorithm for mining.
Parent chain developers do not need to do any additional work to implement unified mining.
Thus, the Bitcoin network does not even need to know that you are simultaneously mining Namecoin.
However, the support chains for integrating integrated production require some modifications.
Continuing our example, Namecoin developers modified their network to accept Bitcoin blocks as valid on the Namecoin blockchain.
Joint mining process
Combined mining does not require miners to purchase additional computing power.
You can mine Namecoin and Bitcoin as efficiently as Bitcoin alone. You (or your pool) just need to do additional configuration to support it.
Here is how it works
The process begins with the assembly of a transaction block for each chain – Bitcoin and Namecoin in our example.
The Namecoin block (auxiliary chain) contains everything that you expect to see in a standard set of transactions.
The Bitcoin block also consists of ordinary transactions. However, it does have an additional transaction with a hash pointing to the Namecoin block you just created.
After assembling the blocks, mining begins.
There are several different scenarios in which events can develop.
- You mine a block at the Bitcoin difficulty level. You finish creating the block and transfer it to the Bitcoin network. Since the difficulty level at which you mined the Bitcoin block is higher than the difficulty level of the Namecoin network, you simultaneously mine the Namecoin block. You get mining rewards from both networks.
- The block is mined at the difficulty of Namecoin. The assembly of the Namecoin block ends with the insertion of the header and hash of the Bitcoin block. Then, the Namecoin blockchain accepts this block. It is able to recognize the additional header and Bitcoin hash as a “proof of work” thanks to the preparatory work that you did to provide support for joint mining. You receive a mining reward only from the Namecoin network.
- You mine a block on the difficulty level between Bitcoin and Namecoin. You will get the same result as in scenario number two.
Consequences of Combined Mining
Small and new blockchain projects may have several good reasons for integrating mining mining.
Most importantly, it increases the security of their network, while maintaining the possibility of its operation as a separate blockchain.
Support chains are also gaining additional users due to their connection with the more popular blockchain.
In addition, for a miner, participation in such a scheme is very attractive, since they receive additional income at no additional cost.
And, since miners usually exchange these two coins in order to keep what they like best, there is an increase in liquidity for both cryptocurrencies.
Parent chains sometimes encounter the problem of inflating the blockchain due to the addition of auxiliary chains.
The hashes added by the auxiliary chain to the transaction tree of the parent chain are small, but still take up space.
As long as coins such as Bitcoin successfully implement second level scaling solutions, this increase should not be a problem.
Unfortunately, there are also certain disadvantages. Integrated mining integration requires additional work on the auxiliary chain.
When switching to combined mining from another protocol, it is necessary to conduct a hard fork. Another hard fork will be necessary if you ever want to abandon the combined mining.
Miners and pools for mining also need to do some work if they want to profit from mining on two chains.
Although combined mining does not require additional power, it does require additional maintenance work.
When mining on two blockchains, you need to serve twice as many connections and support twice as many distribution channels (if you manage the pool).
Some groups may find that extra work will not pay off with extra coins.
In general, combined mining gives more advantages to miners than investors.
However, in combination with other factors, the possibility of joint mining can be an eloquent sign of a promising project.
Namecoin – lack of long-term guarantees
Namecoin is actually a decentralized domain registry and was the first coin in which certain mining with Bitcoin appeared.
Once it was the tenth cryptocurrency in terms of market capitalization, but then it fell significantly to the spot at the beginning of the third hundred.
This is a great example of how a project can slowly fly over to the sidelines – even if it is tied to the most powerful cryptocurrency network.
Earlier, Namecoin was number three in terms of market capitalization, but at the moment this coin is not in the top of cryptocurrency discussions.
Although a significant number of pools support Namecoin mining combined, the coin has not gained much popularity in its five-year history.
Development is also not as active as that of similar projects.
This fall shows that the mere fact of support for joint mining does not necessarily mean that it is guaranteed to get the location of investors.
Dogecoin – immediate effect
At the beginning of the Dogecoin existence, the community decided to integrate the combined mining with Litecoin.
They found that with the original mining mechanism, the network would not be able to pay significant mining rewards in a year.
Without changes, miners would have no incentive to mine, and the network would be susceptible to 51% attack.
Dogecoin showed a significant increase in prices after the introduction of combined mining with Litecoin.
Although this is only one case, it shows that a project that is switching to joint mining may turn out to be a profitable short-term investment.
There are several reasons why this may be true.
First, added network security immediately increases community trust.
In addition, binding to a more famous coin provides relatively unknown cryptocurrencies with greater coverage. This is like a quick marketing push.
Finally, combined mining adds to both chains of liquidity, as miners exchange coins in order to keep the ones they like best.
Elastos – A Potential Snooze
Elastos is a blockchain-based internet project that supports joint mining with Bitcoin.
Although this coin is still relatively unknown, it can be a very good investment option.
Once the platform is completed and the combined mining becomes available, the price of Elastos can show the same growth as Dogecoin.
In addition, Elastos works closely with NEO and Bitmain to form the so-called “China G3” group.
Rumor has it that Bitmain is going to allocate part of the company’s capacity to mine Elastos. If suddenly someone does not know, Bitmain controls several of the largest Bitcoin mining pools.
Thus, this support is a positive indicator for the price of Elastos.
With all this in mind, it is likely that the price of Elastos after the start of mining will receive steady upward pressure.
However, analysis of the project with the goal of long-term investment (more than one year) requires a deeper immersion in fundamental factors.
A couple of thoughts in the end
Merged mining is a great option for young projects that want to develop without fear of a 51% attack.
From the point of view of investors, the decision of the project on the introduction of joint mining can lead to an immediate jump in prices. Although this price hike may be short-lived.
No matter how it affects the price, combined mining is something every investor, miner or even just a crypto enthusiast should know about.
Due to the ever-growing threat of 51% attacks, the transition to joint mining may well be a steady trend, which will meet more often as the industry develops.