Binance Research, the research arm of the world’s largest cryptocurrency exchange recently released a report titled “Case Study: Merged Mining in Dogecoin and Litecoin”, which talked about specific methods for the cryptocurrencies to survive their upcoming block reward halvings.
The research primarily focused on the concept of merged mining, a form of mining that transfers work from parent blockchain to child blockchain using the Auxiliary Proof of Work principle. Binance stated:
“Merged mining refers to the act of mining two or more cryptocurrencies at the same time, without sacrificing overall mining performance. Essentially, a miner can use their computational power to mine blocks on multiple chains concurrently through the use of what is known as Auxiliary Proof of Work (AuxPoW).”
Binance focused on how Dogecoin and Litecoin, two popular cryptocurrencies, have witnessed their parameters getting a boost after the implementation of merged mining. Both Litecoin and Dogecoin saw a significant correlation with Bitcoin in terms of monthly hashrate changes. The data showed that while the LTC/BTC pair had a correlation coefficient of 0.95, the LTC/BTC pair and the DOGE/BTC pair held coefficients of 0.3 and 0.35, respectively. According to Binance:
“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.”
The research also shed light on how Dogecoin, despite being considered as a ‘meme coin’, gave a tough competition to stalwarts like Litecoin when it came to daily on-chain transactions. DOGE conducted more daily on-chain transactions that Litecoin until June 2017, after which for the next six months, Litecoin held the lead. Over the past eighteen months, Litecoin and Dogecoin have shown a similar numbers in daily on-chain transactions.
The compiled data also informed users that there were a few disadvantages from a miner’s perspective when it comes to merged mining. Maintaining new child blockchains was considered a tough task because of the adjustments required in the wallet management, mining setups and the amount of money to be paid to the miners. Another con pointed out by the research was:
“Lack of awareness: Some (potentially newer) pools may not be aware of merged mining opportunities and would not be aware of the potential extra rewards.”