Auxiliary Proof-of-work (POW) simply known as merged mining is the method of mining multiple crypto tokens concurrently. Certain new cryptocurrencies are using this procedure to mine their cryptocurrencies through better and reliable networks while they are developing.
Merged mining uses an auxiliary chain and a dependable host chain that supports the former. Similarly, there is a certain requirement that these cryptos must meet before they can be mined together. The requirement is that the hashing algorithm must be the same for both coins.
We will be using Namecoin and Bitcoin’s pair as an example in which case, Namecoin is the auxiliary chain that depends on the Bitcoin network to be mined. Both tokens require hashing algorithm SHA-256 to be mined.
In this procedure, the parent chain programmers have nothing to do they do not even need to know that some other crypto is being through their network. On the other hand, the auxiliary chain programmers have to modify the blockchain so that it integrates the same Proof-of-Work (POW).
This method requires no additional hardware and does not slows the unit down or reduces its efficiency. The only thing required is to set-up the unit so that it can mine both tokens.
This way if you mine at Bitcoin’s difficulty which is higher than Namecoin’s you will get the reward of mining both tokens. If you mine at Namecoin’s difficulty, you will only get the reward of mining Namecoin. Similarly, if a block is mined with difficulty in between Bitcoin’s and Namecoin’s you will only get Namecoin’s reward.
This method is efficient as well as profitable as no extra investments are needed. Moreover, the liquidity increases as a miner moves tokens between them.