Report: Merged Mining Could Mitigate Bitcoin and Litecoin’s “Reward Halving Shock”

Merged mining could mitigate the impact of the upcoming halving of Bitcoin (BTC) and Litecoin (BTC) mining block rewards, the research arm of cryptocurrency exchange Binance said in a report published July 12.

Following Charlie Lee’s prediction that some miners may stop Litecoin mining after the halving on August 5, 2019, Binance Research analyzed the potential of so-called “merged mining” to retain crypto miners’ motivation.

Merged mining is the process of using the work done for building a blockchain or parent chain to build other smaller child chains by implementing the Auxiliary Proof of Work (AuxPoW) method. So far, there are three major cases of merged mining, including Namecoin (NMC) derived from the Bitcoin blockchain, Dogecoin (DOGE) merged with Litecoin, and Myriadcoin (XMY) merged with LTC and BTC.

In the report, Binance Research concluded that merged mining could “provide a potential opportunity” to increase mining rewards in the event of future block reward halvings for Litecoin and Bitcoin. Binance also added that other smaller chains may also move to Auxiliary Proof of Work (AuxPoW) to guarantee a higher level of network security while reducing the need for a single mining rig.

Meanwhile, Binance Research has warned of potential pitfalls in merged mining from both the miner and project team perspectives. Miners may lose the motivation to support child blockchains due to high operating costs and a potential drop in coin prices. From the perspective of a project team operating a PoW crypto asset, the risks it faces include not only the child chain’s reliance on the parent chain, but also potential new attack vectors.

In the report, Binance Research also believes that Dogecoin, which has been operating for about six years, is the most successful case of merged mining to date. After Dogecoin adopted the merged mining model in August 2014, its mining hashrate increased by 1,500%, showing a correlation with Litecoin hashrate. According to the report, as of July 2019, almost 90% of Dogecoin's total hashrate came from large Litecoin mining pools.

On July 5, Dogecoin appeared on the crypto trading platform of Binance Exchange. On the same day, the exchange released the "Second Quarter Cryptocurrency Review of 2019", pointing out that Dogecoin, like Bitcoin, showed low correlation with other cryptocurrencies in the second quarter of 2019. However, Dogecoin still maintained a significant correlation with Litecoin, which was mainly caused by the joint mining of the two currencies.

On July 9, the difficulty of Bitcoin mining reached a record high of 9.06*1012, with an average hash value of 64.85*1018 per second.