It’s highly possible that the reward halving for bitcoin and Litecoin mining will be mitigated by merged mining.
A recent report by Binance Research, attempted to analyze the potential of merged mining. The aim is to see if incentives for crypto miners can be retained.
Merged mining uses the completed work for the parent blockchain on smaller, child blockchains. This is done via the implementation of the auxiliary proof-of-work (AuxPoW).
Interestingly enough, this is still, a relatively new concept. As of today, there have only been 3 examples of merged mining:
- The bitcoin blockchain-parented Namecoin (NMC)
- The Litecoin-merged Dogecoin (DOGE)
- The dual-merged with LTC AND BTC, Myriadcoin (XMY)
The report states that merged mining has the potential to increase mining rewards in the near future. This mainly concerns the soon-to-happen Bitcoin and Litecoin halving.
Many other smaller chains could potentially switch to AuxPoW to support higher network security. This will also almost entirely eliminate the need for separate mining sets.
Merged mining has very clear pros and cons
Binance Research also laid out all the potential shortcomings of merged mining for both miners and project teams.
The biggest issue for miners, is that they would probably not be incentivized to support child blockchains. This is mainly due to the large amount of operation costs and a potential price decline for the coin in question.
A project team developing a PoW crypto-asset, can become overly dependent on the parent blockchain. This also means that new potential attack vectors have to be considered.
The most successful example of merged mining so far is considered to be Dogecoin. Dogecoin has been operational for 6 years and adopted the merged mining model way back in August 2014.
The result was a 1500% increase in mining hash rate that also showed correlation with Litecoin’s hash rate. Data from the report suggests, that as much as 90% of Dogecoin’s total has rate comes from large Litecoin mining pools.
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