TL;DR; Merged mining can be made decentralization-neutral—or even decentralization-positive—through careful incentive design and the use of lightweight participation mechanisms.
Introduction
Bitcoin side-systems that enable BTC to move across environments fall into three categories: meta-protocols, rollups, and sidechains.
A meta-protocol uses Bitcoin transactions as a data carrier to implement additional rules outside of Bitcoin’s consensus. A rollup executes transactions off-chain and posts commitments and proofs to a base layer. Rollups and meta-protocols share a key property: they modify mining incentives. Malicious reorganizations of the Bitcoin blockchain can be used not only to revert or double-spend Bitcoin transactions, but also to affect rollup or meta-protocol transactions.
A sidechain is a distinct blockchain with its own consensus. Currently, the two prominent Bitcoin sidechains are Rootstock and Liquid. Rootstock relies on merged mining, while Liquid uses a fixed set of functionaries for block production. This distinction is critical: Rootstock directly involves Bitcoin miners, while Liquid does not.
All three kinds of side-systems introduce additional MEV (Miner Extractable Value). MEV benefits large miners who control both block construction, creating structural advantages over smaller or independent miners who are effectively unable to compete for the additional revenue derived from sidechain merge-mining. The core issue, however, is not merged mining itself, but unequal access to its rewards.
Rootstock as a Net Positive for Decentralization
Rootstock is currently merged-mined by more than 80% of Bitcoin’s total hash rate, which provides strong security guarantees and results in a decentralized consensus process. On the positive side, Rootstock strengthens Bitcoin’s security by increasing the total mining reward available to miners. Rootstock is directly contributing to BItcoin’s security budget. One criticism however may be that it introduces an additional revenue stream that benefits miners who have the resources and expertise to run Rootstock nodes. However, this imbalance is temporary and can be effectively resolved through improved incentive design and lower participation barriers.
In this article, we argue that there are practical mechanisms to mitigate these risks, level the playing field and improve Bitcoin mining decentralization. We present six of mechanisms that address this imbalance in different ways: reducing operational costs, outsourcing complexity, redistributing rewards, and improving pool-level decentralisation – light clients, template builders, Rootstock-only mining pools, blind merged mining, Universal Base Dividend (UBD), and APow-friendly merged-mining.
Light Clients Lower the Barrier to Merged Mining
If miners can operate light clients instead of full nodes, the required resources drop significantly. This enables a broader set of participants—including small-scale and embedded systems—to engage in merged mining.
Rootstock was designed with light-client efficiency in mind:
- A single binary trie stores the entire state, enabling compact membership proofs.
- Each trie node encodes subtree sizes, allowing precise synchronization progress tracking.
- Header-only synchronization is supported through compressed headers.
- The state trie is designed for storage rent and hibernation, enabling pruning of inactive data.
Since Rootstock’s launch, multiple light clients have been developed, including plugins and standalone implementations. Proposals such as the Ephemeral Blockchain (RSKIP-215) introduced consensus-level pruning mechanisms. However, because the Rootstock chain size remains manageable, many of these optimizations have not yet been fully deployed.
This situation may change and a light client will likely be deployed as demand grows.
Rootstock Template Builders Remove Complexity
A solo Bitcoin miner can construct their own Bitcoin block template while outsourcing Rootstock block construction to a third party.
The miner does not need to validate Rootstock transactions or maintain a Rootstock node. Instead, they verify that the Rootstock coinbase directs rewards to a contract implementing a predefined revenue split—for example, 80% to the Bitcoin miner and 20% to the template builder.
The template builder fronts the payment to the miner and later recovers it through a smart contract using SPV proofs. Rootstock has a Bitcoin chain oracle embedded, so it can easily verify Bitcoin SPV proofs. This creates a cooperative equilibrium: miners receive rewards without operational overhead, and builders are incentivized to provide high-quality templates.
The operational burden for the miner is minimal: periodically fetch the Rootstock block hash from the template builder and include it in the Bitcoin coinbase, updating templates roughly every 25 seconds. This allows solo miners to increase revenue with minimal additional cost, capturing sidechain fees without the complexity of running full infrastructure.
Pooled Participation Without Giving Up BTC Rewards: Public Rootstock Mining Pools
A miner can remain a solo Bitcoin miner while participating in a pooled Rootstock mining scheme.
In this model:
- The miner connects to a Rootstock pool that provides block headers.
- The miner submits shares based on Rootstock work.
- The pool verifies Rootstock coinbase outputs, not Bitcoin ones.
This allows the miner to retain full Bitcoin rewards while sharing Rootstock rewards with the pool.
The cost is low: submitting shares periodically and updating templates at regular intervals. This model lowers the barrier to participation without requiring full Rootstock validation.
Blind Merged Mining (BMM)
In traditional merged mining, miners both build and propose sidechain blocks. This requires running sidechain nodes and managing transaction selection.
Blind Merged Mining separates these roles.
A new class of actors—block builders—construct sidechain blocks and compete in auctions to have their block IDs embedded in Bitcoin blocks. Miners simply select the highest-paying bid, without needing to understand or validate the sidechain.
This dramatically reduces operational complexity for miners.
However, BMM introduces risks. Miners do not validate whether a block represents an honest extension or an attempted reorganization. If incentives are high enough, builders could pay miners to include malicious blocks.
For this reason, BMM should only be adopted when a majority of hash power is already running full validation nodes, ensuring baseline security.
Current BMM proposals (e.g., BIP-301) require a Bitcoin soft fork. An alternative is a lightweight coordination chain (“BidChain”) using a BitVM/BitVMX bridge, though this introduces additional trust assumptions.
Universal Base Dividend (UBD)
We introduce Universal Base Dividend (UBD) as a mechanism to redistribute sidechain rewards more fairly.
Under UBD, sidechain rewards are split into:
- A universal Bitcoin-security dividend, distributed to all Bitcoin miners
- A merge-mining participation premium, paid to active merge miners
Any Bitcoin miner can claim the universal dividend by submitting SPV proofs of their mined blocks to a smart contract on Rootstock. Since Rootstock verifies Bitcoin headers in consensus, these proofs are efficient to validate.
This ensures that even miners who do not participate in merged mining receive compensation proportional to their contribution to Bitcoin’s security.
Merge miners still receive an additional premium, preserving incentives to operate full nodes and actively support the sidechain.
Variant: Non-merge miners Subsidy
A simplified variant distributes special rewards only to non-merge miners. Since a large majority of Bitcoin hash power already participates in merged mining, this reduces distribution overhead while still compensating underrepresented miners. The exact amount to distribute to non-merge miners can be computed dynamically from the average Bitcoin and Rootstock block rewards so that merge miners’ revenue per hash never surpasses a percentage (i.e. 5%) of non-merge miners revenue.
Auditable Proof-of-Work
Recently, RootstockLabs proposed a modification to Bitcoin’s proof-of-work that enables miners to audit previously scanned nonce ranges, allowing detection of missing block submissions to mining pools and mitigating the long-standing problem of Block Withholding Attacks (BWA). This approach, referred to as Auditable Proof-of-Work (APoW), introduces a mechanism for verifiable work reuse, enabling stronger accountability within mining pools.
APoW can serve as a foundation for decentralized mining pools, a highly desirable goal because it removes the single point of control over block template selection. By distributing this power, decentralized pools reduce the systemic risks associated with template censorship and coordinated 51% attacks.
Importantly, APoW requires only minimal hardware changes: specifically, the addition of a simple 32-bit comparator that checks the leading bits of the hash digest against a preloaded register at the end of the hashing loop in Bitcoin ASICs. This makes adoption economically plausible without requiring a complete redesign of existing mining hardware.
As Bitcoin’s block subsidy declines over time, and if Rootstock’s block rewards increase, Rootstock could provide the economic incentives needed to support APoW adoption. If Rootstock were to adopt APoW, ASIC manufacturers could incorporate APoW functionality into their hardware, enabling the emergence of new decentralized Bitcoin mining pools. In this way, Rootstock could bootstrap the real-world deployment of APoW-compatible hardware and help demonstrate its practical benefits. If those benefits become sufficiently clear and widely recognized, Bitcoin itself may eventually consider adopting APoW natively.
Although this scenario is forward-looking, it illustrates a broader principle: sidechains can act as innovation layers for Bitcoin, enabling the deployment and economic validation of new security mechanisms years before they are adopted at the base layer. In this sense, Rootstock is not only compatible with Bitcoin’s decentralization, it can actively contribute to strengthening it.
Merged mining can be a positive force for further decentralisation
Centralization arises when participation requires disproportionate resources or specialized knowledge. Rootstock’s architecture, combined with mechanisms such as light clients, template builders, pooled participation models, and Blind Merged Mining, significantly lowers these barriers. The introduction of Universal Base Dividend further aligns incentives by ensuring that all Bitcoin miners benefit from sidechain activity, not only those with advanced infrastructure. Moreover, Rootstock’s potential adoption of APoW could further strengthen Bitcoin’s decentralization.
Taken together, these mechanisms demonstrate that merged mining can be made compatible with a decentralized mining ecosystem. Instead of concentrating power, sidechains like Rootstock can expand the economic base of Bitcoin mining while preserving broad participation—provided that incentive design is carefully engineered.
By increasing the total rewards available to miners without introducing additional consensus risk to Bitcoin, Rootstock effectively strengthens Bitcoin’s security budget, making it a clear net positive for the long-term resilience and decentralization of the network.
Learn more about merge mining Rootstock here. At RootstockLabs we are always excited to see new ecosystem participants joining the network and welcome any enquiries from teams interested in implementing any of the ideas above. You can also read our previous article about Rootstock and Mining Decentralization here.