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Bitcoin difficulty increases for the sixth consecutive time

Hashrate stays on track for its slow but steady recovery. Here are the benefits and challenges of the latest difficulty adjustment and how it may affect profitability.

The difficulty adjustment in numbers

The Bitcoin network implemented its automatic mining difficulty adjustment on October 4 at block height 703584. The difficulty was increased for the sixth time in a row, recording a 4.71% rise.

Bitcoin mining difficulty (Source: Coin Metrics).

New miners are coming online, and the upward trend on hashrate doesn’t seem to be slowing down any time soon.

Mining difficulty is now at 19.9T, with the hashrate reaching 147M TH/s. Block time has decreased 10 seconds on average, now being 09:33 minutes.

Bitcoin hashrate (Source: Coin Metrics).

Remember that hashrate difficulty is a measure that determines how hard it is to mine a Bitcoin block. It adjusts automatically every 2016 blocks — roughly every two weeks — proportionally to the amount of hashrate currently working on the network. The more hashrate, the harder it becomes to find a block and vice versa.

After this adjustment, Bitcoin has now unwound more than 50% of the difficulty drop it experienced after the Chinese miner migration.

Hashrate and difficulty growth explained

October started with the news of the end of the mining ban in Iran. The restriction imposed by the country’s government in May aimed to reduce energy consumption during the winter to prevent shortages.

Izalco Volcano, Sonsonate, El Salvador.

This event adds to the reconnection of most Chinese miners still struggling to relocate due to the supply chain and logistics crisis worldwide. Additionally, El Salvador has made the much anticipated volcano-powered Bitcoin mining site a reality.

Many mining firms in the United States and Canada have reportedly begun expanding their operations. Everything points to the beginning of a new era of cooperation between energy producers and mining entities, especially regarding nuclear energy.

All these factors have led to an acceleration in hashrate recovery. And considering the current momentum, it seems that we will reach new all-time highs soon.

How does this adjustment affect profitability?

In theory, greater difficulty means more effort is needed to find a block. The harder it is to do that, the more energy it needs, and thus the less profitable mining becomes (more costs for the same reward). However, miners are pleased that this is not the case.

With Bitcoin bullish start of October jumping from $43,000 to $48,000, mining has become more profitable, even after the rise in difficulty. Take a look at the charts below.

Bitcoin miners’ revenue in BTC (Source: Coin Metrics).

The first chart shows miners’ revenue in bitcoin. As you can see, there have been steep falls every two weeks or so. Those vertical drops correspond to the last difficulty adjustments, each one making it harder to mine Bitcoin.

Now, let’s look at profitability in US dollars.

Bitcoin miners’ revenue in USD (Source: Coin Metrics).

The situation changes drastically. The drops corresponding to difficulty adjustments are still noticeable in the chart. However, we can see a quick recovery soon after. These profitability upswings are due to the rise in bitcoin’s price.

Finally, look at the right end of the chart, which shows profitability for the first days of October. The rising difficulty barely affected miners’ revenue. Remember that the latest adjustment was an increase of 4.71%. Since the start of Q4, bitcoin has surged ~14%, meaning that even if miners are getting less bitcoin for mining, they are getting more dollars for it.

Final thoughts

Hashrate recovery is essential to maintain the network’s security, especially if new miners are connecting in a distributed manner around the world.

Although North America is the most popular choice for miners right now, it’s nowhere near the level of centralization that China had before the ban — around 46%. Mining decentralization is vital to ensure the correct functioning of the network and avoid another significant hashrate drop.

Another good news is that hashrate is growing without affecting profitability. High revenues keep miners incentivized to continue providing security and computing power to the Bitcoin network.

All in all, it’s positive to see that as we keep getting closer to full recovery, we’re doing so in a much more decentralized, distributed, and still profitable way. This outcome only reinforces the strength of the Bitcoin network and community and shows that not even a big hit — like the Chinese ban — can bring it down.

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