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Bitcoin mining difficulty is plummeting – here’s why
Bitcoin has become much easier to mine – should we be worried?
Data from BTC.com show what Bitcoin mining difficulty fell nearly 6% to 83.1 trillion hashes yesterday. The greater the difficulty of mining – measured through the energy and resources that miners use to keep the network secure – the harder Bitcoin will be to attack.
A drop in difficulty, therefore, is not a good sign. But it is expected, at least in the short term, experts said Decrypt.
“If there is not enough margin for miners to make a profit, they shut down, which causes the hash rate to drop,” said Nick Hansen, CEO of mining group Luxor. Decrypt.
“Hash rate” refers to the speed at which a miner produces hashes – the process of encrypting data. This model is known as proof of workan important differentiator for Bitcoin.
Last month, Bitcoin underwent a quadrennial event called reduce by half. The update halved miner rewards, from 6.25 BTC for each block processed to 3.125 BTC.
Miners – who produce new coins and keep the network running by processing new transactions – now have to work more to stay in the game. And with smaller rewards but harder work, many miners are going out of business altogether.
Nishant Sharma, founder of BlocksBridge Consulting – a research and communications strategy firm dedicated to the Bitcoin mining industry – said this is what usually happens after the halving.
“After the Bitcoin halving, the drop in mining rewards leads less efficient miners to shut down their machines,” he said. “This auto-tuning feature favors leaner operations as the remaining miners receive higher rewards due to the reduced difficulty,” said Sharma.
Scott Norris, CEO of mining company Optiminer, agreed: “This is a normal occurrence after a halving event and healthy for the network and well-positioned miners,” he said.
“Miners who planned properly will grow or those who shut down will get newer technologies and find cheaper energy while everyone waits for the price to reflect the halving,” Norris added. “Either way, the network will continue to grow.”
O Bitcoin price is also playing a role in the drop in mining difficulty: the asset reached a new all-time high of $73,737 last month, but today it sits at $62,506, a 15% drop, according to CoinGecko.
If the asset’s price were higher, mining the asset would be more profitable, the rewards for miners would be greater, and more people would be able to stay in the business. But the declining price of BTC makes this more difficult, worsening the effects of the halving.
Still, Norris says this isn’t a surprise — nor is the lull in the market.
“It always happens like this,” Norris said. “Historically, it will be at the end of the year that we see a big price increase [for Bitcoin].”