Unstoppable: Bitcoin mining difficulty rises for the seventh time in a row
The latest adjustment, effective at block height 705,600, increased the difficulty of finding a block once again. In this overview, we’ll analyze the effects this has on mining and profitability.
Hashrate is not slowing down
Interest in mining is as high as ever. After the global reorganization of hashrate caused by the Chinese mining ban, the landscape is starting to take shape. Hashrate has reached a total of 157 EH/s and is only ~20% away from reclaiming its 198 EH/s all-time high.
There’s a couple of reasons that explain why hashrate has grown consistently these last couple of months.
Firstly, the ~50% drop in hashrate and difficulty that followed the Chinese ban provided an exceptional opportunity to mine Bitcoin with ease. The remaining miners have enjoyed unusually high profitability from their mining operations thanks to the great reorganization.
Many of them capitalized on the opportunity. With large Bitcoin mining corporations striking deals with energy producers and acquiring mining hardware and equipment in bulk to scale up their operations, hashrate shoot up and will probably keep doing so for the next couple of months.
How can Bitcoin miners partner up with energy producers? There are a couple of different ways they can engage in a mutually beneficial situation. Check them out on our articles below.
Secondly, and although many still haven’t, Chinese miners have begun relocating. According to Cambridge University, the United States has taken the lead in the race to attract migrating miners. Canada, Kazakhstan, and Russia are other countries that have seen their share of global hashrate grow, although it’s not certain that all of them welcome it.
The last Bitcoin mining difficulty adjustment explained
Hashrate isn’t a stable factor. It varies in large jumps and falls, as you can see in the chart above. Because of those fluctuations, especially at the time of the adjustment, the rise in difficulty was merely 0.95%.
However, it was enough to reclaim the 20T difficulty threshold. Only 5T away from 25T, the highest difficulty ever recorded.
Furthermore, after the Bitcoin network implemented the adjustment, a large portion of hashrate came online. The estimate for next adjustment, which will happen in about a week, is already over 7% increase by the time of publication.
Although this may not hold until then — remember that hashrate isn’t a stable metric — , it’s a sign that the small difficulty rise is not due to hashrate slowing down, but just a timing factor.
Difficulty and profitability for Bitcoin miners
The slight rise in difficulty and the bullish rally of bitcoin to new all-time highs are excellent news for Bitcoin miners. Profitability — measured in fiat currency — jumped up to yearly maximums during bitcoin’s peak, although it quickly corrected a few days later.
Still, mining revenue remains at yearly highs. Miners hope that bitcoin will resume its rally and surge past old all-time highs to keep enjoying maximum profitability, even with greater difficulty.
On the other hand, the bad news is that revenue in bitcoin has been consistently decreasing now. Nevertheless, this is a perfectly normal scenario, especially after seven consecutive difficulty raises.
Another factor that explains low rewards in bitcoin is fewer network usage. During bitcoin rallies, it’s expected that more people want to hold their coins in cold storage instead of trading or moving them around.
Holding results in fewer transactions, which in turn results in fewer fees paid. Thus, miners earn lower rewards in Bitcoin.
Remember that miners’ revenue consists of two different “payments,” the block subsidies and the fees. If you want to learn more about it, you can’t miss our article below.
However, this shouldn’t be a problem in the short term, especially if bitcoin keeps appreciating. In fact, before the Chinese ban and during hashrate all-time highs, revenue in BTC was even lower than it is today.
Closing thoughts
Although higher mining difficulty tends to reduce profitability, bitcoin’s price action and the minimum proportions — lower than 1% — of this adjustment, in particular, led to an actual increase in revenue measured in dollars.
This is positive not only because incentives to provide security to the network remain high, but also because it enables hashrate to keep growing, recovering, and redistributing without any major repercussions.
The continuity of bitcoin’s bull rally, new government regulations — especially the infrastructure bill in the US — , and the supply chain and energy industries crises will be critical factors to watch regarding the development of the mining landscape in the next couple of months.
Did you like this story?
Make sure to follow us on Medium for more exclusive content every week. You can also subscribe to our blog and sign up for our weekly newsletter. We’ll be glad to have you!
