How Merge Mining and Anchored Blockchain Projects Capitalize on Bitcoin’s Security Model
Since 2011, just after Satoshi Nakamoto left the Bitcoin project for good, networks have emerged that leverage the BTC chain in some way. A variety of projects over the last nine years have found value in anchoring some sort of feature set to BTC in order to bolster the satellite’s underlying network. The following article examines when these anchor-style projects started, where they are today, and how these concepts have been perceived by the crypto community.
Satoshi’s cryptocurrency invention is almost 11 years old and a lot has changed since the early days. One thing that has remained a constant, however, is projects using the BTC chain in some form for leverage. Protocols that harness the network include projects like Namecoin, Counterparty, Rootstock, Blockstack, Omni Layer, Factom, and Veriblock.
Namecoin is a project that started in 2010 when a few early blockchain developers including Gavin Andresen and Satoshi talked about using the BTC chain for a domain name system (DNS). That December, developers offered a reward for a DNS system and Namecoin (NMC) was born from these discussions and ideas. After months of DNS and Bitcoin discussions, Namecoin was officially announced on April 18, 2011. The NMC network is a separate blockchain that creates a domain naming system and the NMC code is based on the BTC codebase releases of that timeframe. Namecoin uses a system called merged mining and on block 19,200 the NMC network allowed users to mine both BTC and NMC at the same time. This move made it so NMC miners didn’t jump from one chain to another when profitability changed.
NMC trading and mining is still quite active today and it’s one of the oldest cryptocurrencies in existence. Just like BTC, the NMC supply is limited to 21 million, and currently there’s a circulating supply of 14,736,400 NMC in existence. Essentially, domain name value pairs are stored on the chain and attached to coins. After 12,000 blocks, names expire unless the owners renew the domain. Initially, the project was fairly popular and attracted other projects like Onename which has since rebranded to Blockstack.
However, in 2015, Harry Kalodner, Miles Carlsten, Paul Ellenbogen, Joseph Bonneau, and Arvind Narayanan from Princeton University released a dreary empirical study of Namecoin. The study noted that only 28 of 120,000 domain names tethered to Namecoin were used. That year, Blockstack founder Muneeb Ali explained that his project would move to to the BTC chain due to the mining pool Discus Fish dominating 60-70% of the NMC hashrate. NMC touched an all-time high (ATH) in 2013, jumping to over $10 a coin, but it never saw those heights again. During the bull run of 2017, NMC spiked to $5 and today the coins trade for $0.55. Namecoin is the first major project to leverage the BTC chain.
Another coin that uses the BTC chain to benefit is Omni Layer, a project that originally stemmed from Mastercoin. Omni is well known for issuing the stablecoin tether (USDT) and every Omni and tether transaction utilizes the same transaction hash on the BTC chain. Omni Layer also has other tokens such as maidsafe, synereo, and the native omni tokens, but tether (USDT) which started in 2014 has been the chain’s dominant output.
Omni is a protocol built as a layer over the BTC chain. The idea lets anyone generate tokens, send, trade, redeem, and pay token dividends as well. Omni developers consider the protocol to be an HTTP layer that works on top of the BTC network’s TCP/IP. The Omni blockchain uses the BTC chain’s scripting feature and the OP_Return opcode that initiated during version 0.9 of the Bitcoin reference client release.
Throughout the cryptocurrency community, discussions rarely talk about Omni as the project is not very well known. However, the tether stablecoin issued on the Omni Layer chain is very well known and USDT accounts for the majority of trades against nearly every cryptocurrency trading pair.
