What is Merged Mining?
Merged Mining allows a miner to mine different blockchains simultaneously - A miner can get the rewards of the different blockchains for the same amount of work. This improves the efficiency of miners mining multiple blockchains, increases the security or hash rate of the blockchains, and provides miners with the revenue streams of the different blockchains without incurring any extra cost. This concept was proposed by Satoshi Nakamoto in late 2010 and was implemented with Bitcoin and BitDNS (now known as Namecoin) using SHA256 and later between Litecoin and Dogecoin using Scrypt.
Satoshi’s Suggestion: Merge Mine Altcoin BitDNS with Bitcoin
Satoshi Nakamoto's last conversation on Bitcointalk with Hal Finney discussed Merged Mining BitDNS (The first Altcoin) with Bitcoin, Atomic Swaps, and The Nakamoto Monetary System.
Let us start with a fork of Bitcoin. We will start a new block chain just like Bitcoin did two years ago. There will be coins in this chain… - Hal Finney “BitDNS and Generalizing Bitcoin” Dec. 6, 2010
I think it would be possible for BitDNS to be a completely separate network and separate blockchain, yet share CPU power with Bitcoin. The only overlap is to make it so miners can search for proof-of-work for both networks simultaneously. The networks wouldn't need any coordination. Miners would subscribe to both networks in parallel. They would scan SHA such that if they get a hit, they potentially solve both at once. - Satoshi Nakamoto "BitDNS and Generalizing Bitcoin" Dec. 9, 2010
Piling every proof-of-work quorum system in the world into one dataset doesn't scale. Bitcoin and BitDNS can be used separately…The networks need to have separate fates…It's easy to trade Bitcoins for other non-repudiable commodities. If you're still worried about it, it's cryptographically possible to make a risk free trade. The two parties would set up transactions on both sides such that when they both sign the transactions, the second signer's signature triggers the release of both. The second signer can't release one without releasing the other. - Satoshi Nakamoto "BitDNS and Generalizing Bitcoin" Dec. 10, 2010
Satoshi, are you endorsing the idea that additional block chains would each create their own flavor of coins, which would trade with bitcoins on exchanges? - Hal Finney “BitDNS and Generalizing Bitcoin” Dec. 10, 2010
Right, the exchange rate between domains and bitcoins would float. - Satoshi Nakamoto "BitDNS and Generalizing Bitcoin" Dec. 10, 2010
SatoshiLite's Suggestion: Merge Mine Dogecoin With Litecoin
Litecoin and Dogecoin are Merged Mined. Dogecoin was facing the possibility of a 51% attack back in 2014 due to its rapidly declining miner rewards and hash rate. To combat this, Charlie Lee @SatoshiLite, the creator of Litecoin, proposed merged mining Dogecoin with Litecoin to the /r/Dogecoin community on Reddit since Dogecoin was a software fork of Litecoin and it used the same Scrypt Hashing algorithm. The community agreed and decided that the increased security and the longevity added by tying Dogecoin to Litecoin were worth the trouble to hard fork and run Dogecoin as an AuxPoW coin to Litecoin.
The Future of Merged Mining. A Bitcoin Miner's Future?
Mining SHA256-based cryptocurrencies is a great way to earn rewards, but with the subsidy halvings, miners will need to charge higher and higher fees to make a profit and secure the network. Fortunately, Merged Mining may be the answer these miners be looking for.
Impact of Halvings on SHA256 and Scrypt Miners: A Comparison
SHA256 and Scrypt miners will experience the halvings equally in terms of the reduced block subsidies from mining Bitcoin and Litecoin respectively. However, Scrypt miners also have the benefit of the constant tail emission from mining Dogecoin, which provides a steady stream of new coins and helps to offset the reduction in block subsidies from Litecoin. This means that Scrypt miners may have a slightly more stable revenue stream compared to SHA256 miners, who rely solely on block subsidies and transaction fees from mining Bitcoin.