Bitcoin Mining Difficulty Moving Higher as More Hashrate Comes Back Online
Bitcoin mining is a cutthroat business, where only the most efficient and well-equipped miners can turn a profit. It’s a battle of computational power and electricity costs, and bitcoin’s mining difficulty is constantly shifting, making it harder or easier to mine new bitcoins.
Recently, BTC’s mining difficulty has seen a significant increase of 10.26%, its biggest move since October, according to data from BTC.com. This sudden shift in difficulty is a clear indication that the mining industry is heating up, as miners come back online after winters storms with newer, more powerful machines.
This article will dive into what this means for the current state of the mining industry, and how it could shape the future of the world’s most popular cryptocurrency, Bitcoin.
Why is Bitcoin’s mining difficulty increasing?
Bitcoin mining difficulty is moving higher as more hashrate comes back online, according to data from BTC.com. The mining difficulty, which determines how hard it is to create the next block of transactions, reset just after 4 p.m. ET, following its roughly two-week schedule. The current difficulty level of 2.63% higher than the previous high, and it surpasses all but one of the difficulty increases from last year.
“It’s a combination of the institutional miners scaling a bit over that longer time period, and some positive variance,” said Daniel Frumkin, director of research at Braiins. “But due to the winter storm, we wouldn’t have seen any of that in the previous epoch, meaning that we are now seeing ~3 weeks of deployments rather than just one.”
Companies like Marathon and Hive Blockchain have been continually deploying more efficient machines like S19 XPs and blockscale BuzzMiners, he said.
According to the most recent round of operational updates from December, Hive installed 1,423 machines powered by Intel Blockscale, while Marathon said 12,000 S19 XPs would go online in the coming month.
Cipher Mining has been quickly ramping up production as well, increasing its hashrate by 40% last month. Meanwhile, Riot, which deployed 16,128 S19-series miners in December, said the storm knocked about 2.5 EH/s offline.
“We’re not seeing any change in the energy costs associated with mining … There’s not a great amount of profitability unless you’ve got the most efficient miner,” said mining analyst and accountant Anthony Power. “If you haven’t got those you’re not probably not making sufficient money to cover your costs.”
Implications of mining difficulty on Bitcoin network
The increase in mining difficulty could have implications for the overall Bitcoin network. As mining becomes more difficult, it becomes more expensive for miners to create new blocks, which in turn can lead to higher transaction fees for users.
This could make it less attractive for some users to transact on the network, potentially slowing down the rate of transactions. On the other hand, the increase in mining difficulty can also be seen as a sign of the network’s health, as it indicates that more miners are coming online, which can lead to more robust and secure network.
Additionally, a higher mining difficulty can also be seen as a bullish sign for bitcoin’s price as it may indicate that more investors are coming into the space, which in turn can drive up the demand for bitcoin.
The high mining difficulty also comes at a time when the price of Bitcoin is on the rise. The cryptocurrency has climbed 23% higher in the last seven days, which can, of course, be beneficial to Bitcoin miners. However, the 10.26% difficulty increase will make profits a lot tighter. This means that miners will still have to be more efficient and cost-effective to turn a profit.
Mining difficulty and centralization
Another aspect to consider is the effect of mining difficulty on the decentralization of the network. A high mining difficulty implies that the network requires more computational power to find new blocks, making it less accessible for small-scale miners to join and participate in the network.
This could result in a concentration of mining power in the hands of a few large mining pools, which could potentially lead to a centralization of the network. This, in turn, could have implications for the overall security and robustness of the Bitcoin network.
Indeed, this current raise in mining difficulty highlights stats showing a growing concentration of mining pools. Statistics show that the top mining pool, Foundry USA, commands 97.03 exahash per second (EH/s) of hashrate, while Antpool has around 55.92 EH/s.
The previous bear market and period of historically low BTC pricing compared to mining difficulty has also forced many mining pools out of business due to operating losses. For instance, Core Scientific–one of the top Bitcoin mining companies–filed for bankruptcy in late December 2022 as a result of plunging cryptocurrency prices combined with increasing energy costs.
As the next difficulty change is expected to occur on or around Jan. 28, 2023, miners and investors alike will no doubt be keeping an eye on how it will affect both the industry and the price of Bitcoin.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.