In brief
- Bitcoin network difficulty has adjusted upward for the seventh time in a row.
- It hasn't done that since 2019.
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Discover SCENEBitcoin's code has been around since 2009, but roughly every two weeks the algorithm changes just a bit to make it either easier or harder to mine.
The network difficulty today became 1% tougher. While that's not a huge jump, it's the seventh straight increase since late July. According to Arcane Research, the last time that happened was in 2019.
Bitcoin mining difficulty adjusts in order to keep blocks processing at a rate of one every 10 minutes. In proof-of-work blockchains, such as Bitcoin, miners compete with one another for the responsibility of validating transactions so that they can unlock the freshly minted BTC created with each block. To get that chance, they race to be the first to solve a cryptographic puzzle. The more computing power they bring to the table, the faster they can solve it.
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So, one can imagine that, as everyone brings more computing resources, or hashpower, to the table, that puzzle is going to be solved quite quickly. Instead of a slow drip of Bitcoin into the crypto economy, there'd be a deluge.
The difficulty adjustment solves for this. The fact that the cryptography keeps becoming a bit more challenging is reflective of the increased hashpower being brought to the table.
According to statistics from Bitcoin block explorer Blockchain.com, the hashrate—the number of calculations being made per second—for October is at its highest level since June, when it was coming down from a spring sugar high.
The hashrate over the past six months correlates fairly well with the price of Bitcoin during that span. About a month after Bitcoin hit an all-time high price of $64,804.72 (according to data from CoinGecko), the hashrate also peaked. When Bitcoin's price plummeted, so did hashrate.
Miners, says Arcane Research, are chasing a payday: "The current high profitability of mining has steadily drawn in more hashrate."
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But mining has been profitable, in part, because of the shutdown of mining outfits in China over the summer. Miners based in the U.S. and elsewhere benefitted from decreased competition. Yet that high hashrate is returning, and high prices with it, the latter of which keeps miners happy. Arcane notes that average daily miner revenues last week were up 25% on the yearly average.
"2021 has been an excellent year for bitcoin miners," it concludes, "and the super-profits have increased lately and don’t seem to end soon."
As an avid blockchain and cryptocurrency enthusiast with a demonstrable depth of knowledge in the field, I can provide a comprehensive analysis of the concepts mentioned in the article.
The article discusses the recent adjustments in the Bitcoin network difficulty, highlighting that it has increased for the seventh consecutive time, a phenomenon not observed since 2019. The term "Bitcoin network difficulty" refers to the measure of how challenging it is to find a new block in the Bitcoin blockchain. This difficulty is adjusted approximately every two weeks to maintain a consistent block production rate of one block every 10 minutes.
The adjustment in difficulty is a crucial aspect of Bitcoin's proof-of-work consensus algorithm, where miners compete to solve cryptographic puzzles. The article emphasizes that the recent 1% increase in network difficulty is indicative of the continuous rise in hashpower, or computing power, being brought to the Bitcoin mining process.
Mining difficulty serves as a mechanism to counteract the increase in hashpower, ensuring that blocks are not mined too quickly. If mining were too easy, there would be a flood of new Bitcoin entering the market, disrupting the intended pace of issuance. Therefore, the algorithm adjusts the difficulty to maintain a balance between the increasing hashpower and the desired block production rate.
The article also touches upon the correlation between Bitcoin's price, mining hashrate, and miner profitability. It notes that the hashrate for October is at its highest level since June, and this increase in hashpower aligns with a period of high Bitcoin prices. The interplay between Bitcoin's price and mining hashrate is complex but often linked, as miners are attracted to the increased profitability when prices are high.
Furthermore, the article mentions the impact of the shutdown of mining operations in China during the summer, which resulted in decreased competition among miners and increased profitability for those based elsewhere, particularly in the U.S. The return of high hashrates and Bitcoin's sustained high prices is highlighted as a factor contributing to the continued profitability of mining.
In conclusion, the dynamics discussed in the article underscore the intricate relationship between Bitcoin's network difficulty, mining hashrate, and market conditions. The ongoing adjustments in difficulty reflect the competitive nature of Bitcoin mining and its responsiveness to changes in hashpower and market dynamics.
