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Hashrate all-time highs incoming? Bitcoin records 8 consecutive difficulty increases

Hashrate is showing no sign of stopping and, consequently, neither does difficulty. The drop caused by the Chinese crackdown is way in the past, and we’re now approaching all-time highs. Like we do after every difficulty adjustment, let’s see how this affected mining profitability.

Bitcoin’s latest difficulty adjustment

The latest change in difficulty happened at block height 707,616. This wasn’t only the eighth consecutive increase; it was also one of the largest recently.

Difficulty jumped from 20.08T to 21.66T, recording a rise of 7.85%. The surge resulted from the growth in hashrate, which reached 155.03 EH/s at the time of the adjustment.

According to Coin Metrics, the total hashrate is now 159.39 EH/s and is getting ever closer to the 198.62 EH/s all-time high.

Mining difficulty (Source: Coin Metrics).
Bitcoin’s total hashrate (Source: Coin Metrics).

These movements are a clear indication of Bitcoin’s strength. After China’s crackdown on mining and the successive disconnection of more than half the total hashrate, the network is now coming close to a full recovery without suffering any issues nor downtime.

Difficulty and mining profitability

Unlike the previous difficulty adjustment, which was mild and only saw a 0.95% change, this last increase took a bigger hit on mining profitability.

Greater mining difficulty often leads to reduced profitability since miners have to spend more power and effort to find blocks. Additionally, those contributing hashpower to a mining pool may see their payments reduced, as they are distributed proportionally among the pool’s miners.

Interested in how mining pools work? Make sure to visit the article below to learn more.

If the pool’s total hashrate increases but a specific miner’s contribution stays the same, his share of hashrate will represent a smaller percentage of the pool’s total. Thus, his part of the distributed rewards will be inferior.

As you can see in the cart, every difficulty adjustment corresponds to a steep decline in miners’ revenue per hash per second. In other words, miners earn less bitcoin for the same amount of computing power.

Possible scenarios for improved profitability

Rising mining difficulty has both positive and negative repercussions.

Photo by Executium on Unsplash

As we’ve said, it harms miners’ revenue, making it a less profitable activity. However, the difficulty must increase with hashrate to keep the network secure — making it more costly to attempt an attack — and keep block time stable.

There’s nothing to worry about, though. Miner revenue is still much higher than when hashrate was sitting at these same levels prior to the Chinese ban. That said, there are a couple of situations where profitability could improve even despite the difficulty increase.

The first possible scenario is that Bitcoin price increases simultaneously with difficulty. That way, even though miners will still earn less bitcoin for their hashrate, their revenue in fiat currency won’t take a hit. More expensive bitcoin enables miners to hold, as they need to sell fewer coins to cover their expenses.

The chart above shows miner revenue per hash per second, but measured in US dollars. It’s clear that due to bitcoin’s price increase, earnings in fiat weren’t as affected by difficulty as earnings measured in BTC. In fact, it’s still close to yearly highs.

Another possibility that could counter the drop in revenue is Bitcoin’s usage growth. The more people use the network — the more transactions they send — , the more rewards miners will receive.

Miners receive all fees paid for transactions, so an increase in volume would mean that miners would get more bitcoin for finding a block.

This would be a healthier alternative in the long term, making the network more sustainable and keeping incentives high. However, it requires a significant level of adoption to become a reality.

If you want to learn more about Bitcoin miners’ revenue, you might wanto to check out our article below.

Closing thoughts

Hashrate has consistently recovered since the Chinese ban and it’s not showing any signs of slowing down. This is great news for the network, as it shows its strength and resilience against external events.

However, as difficulty keeps rising, this high-profitability mining season miners are still enjoying may be close to an end. Ideally, bitcoin’s price or usage growth would compensate for this drop in revenue. However, it’s not certain that it will happen, at least in the short term.

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