My Take on Merged Mining: Why Merged Mining Doesn’t Increase Security of the Auxiliary Chain
Merged mining is the idea that two cryptocurrencies that use the same mining algorithm can be mined simultaneously such that the work done on one blockchain can be used as valid work on another chain.
This recently came to light with the rise of Dogecoin because it is merge mined with Litecoin. Since they both use the Scrypt mining algorithm, they can be merge mined. Litecoin miners can use their hash power to mine blocks on Litecoin and Dogecoin simultaneously via Auxiliary Proof of Work.
In the case of Litecoin and Dogecoin, Litecoin is considered the parent chain and Dogecoin the auxiliary chain since Litecoin miners are leveraging their proof of work to be used as work on Dogecoin.
Does this mean that Dogecoin is leaching off of the security for Litecoin?No. Some believe this is true because if most miners are now mining both chains, it would lead many to believe that Dogecoin is as secure as LTC. Merged mining is typically implemented to resolve the problem of bootstrapping a new coin past the vulnerable stage of low security.
This idea fails to recognize that the hash rate that is not solely attributed to securing the auxiliary chain does not contribute to its security. Since there is no additional cost to mining dogecoin for LTC miners, there is also no cost to censor the merge-mined chain. If security is “free” via merged mining it’s not secure, since it also free to attack/censor. Whenever someone tells you that you can get something for nothing, be skeptical. Nothing in life is free.
As I’ve discussed in previous articles, demand for settlement is what ultimately pays for security. Censorship resistance and protection from double spend attacks result from the utility (demand for settlement) of the chain. A chain with lower transactional demand that shares the same PoW algorithm, in this case dogecoin, will have lower security because of lower demand to transact on that chain which means lower hashrate. Merged mining does not alter this dynamic.
Sharing the same mining alogrithm means it is likely for miners on the parent chain to collude to censor the auxiliary chain since it can be done at no cost. This does not require 51% dominance in hashrate of the LTC network because not all miners who mine LTC also mine dogecoin. The incentive to attack the auxiliary chain must be weighed against the benefits of collecting the block subsidy + fees. The main point to take away from this article is that merged mining does not increase the security of an auxiliary chain.