A report released by Binance’s research team shows that the effect of block reward halvings for both Bitcoin (BTC) and Litecoin (BTC) mining could be alleviated by merged mining. Both the coins practice merged mining that gives increased security for smaller Proof of Work (PoW) blockchains.
What Is Merged Mining?
Merged miner allows a miner to mine for more than one blockchain at the same time. The benefit is that every hash the miner does contributes to the total hash rate of both currencies, and as a result, they are all more secure.
This is quite a complex process. All the transactions for both networks are ordered and their Merkle trees hashed out. The two blockchains are classified as the parent and the auxiliary blockchain. The Auxilary blockchains Merkle root is inserted into the extra nonce section of the parent blockchain. Auxiliary chains, however, need some added development to integrate merged mining.
Doing so increases the security of their network while still being able to operate as a distinct chain. These auxiliary chains also obtain exposure by being linked to a more popular blockchain. Moreover, miner’s are profoundly incentivized to cooperate as they receive extra income at no additional cost or power. Consequently, miners usually trade between the two coins to keep what they favor, there’s a boost in liquidity for both cryptos.
Dogecoin and Litecoin’s Merged Mining History
.@BinanceResearch Analyzes Merged Mining in Dogecoin ( $DOGE) & @litecoin ( $LTC) #Binance Research analyzes how merged mining can help smaller blockchains in light of the upcoming halving of block mining rewards for some major blockchains.https://t.co/wmD7hL7dIZ
— Binance (@binance) July 12, 2019
“Given that block mining rewards are halved every four years for both Litecoin and Bitcoin, merge-mining could potentially become a solution to maintain network security in the long-run as newer cryptoassets, with higher block rewards, could be merge-mined within the same pools.”
In the early days of Dogecoin, the community decided to integrate merged mining with Litecoin. They found that with the original mining mechanism in place, the network would run out of significant mining rewards within the year. With no changes, miners wouldn’t have an incentive to mine, and the network would be susceptible to a 51% attack.
They claim that LTC/BTC pair had a correlation coefficient of 0.95. However, the LTC/BTC pair and the DOGE/BTC pair are only correlated with a coefficient of 0.3 and 0.35.
“This [hashrate correlation coefficient] could potentially signal that factors such as the overall market cap of the industry play an important role in the hashpower dedicated to mining.”
They even go on to point out that nearly 90% of Dogecoin’s total hashrate comes from large Litecoin mining pools, with its blockchain processing around 30,000 transactions per day. The writes of the report claim that even though LTC is the parent, in this case, the popularity of DOGE might be enough to incentivize miners.