Bitcoin: Mining difficulty hits second largest drop in history

3 min reading

They key measure of competition between Bitcoin miners, so-called mining difficulty, has fallen by almost 16%. It is the second largest drop in cryptocurrency network history.

the difficulty of bitcoin mining decreases

Bitcoin mining dificulty notes drastic decrease

Mining difficulty measurement adjust itself every 2016 blocks. Mining 2016 block lasts about 2 weeks. This correction is based on some changes in network’s hashrate and happens repeatedly, to ensure, that network is still solving new blocks equations every ten minutes. 

If hashrate increases during last two weeks, the mining difficulty increases too. It makes extracting new blocks more difficult. If hashrate decreases, blocks are able to be extracted much easier.

Currently, Bitcoin mining difficulty has dropped by almost 16%, which is the second biggest decrease in Bitcoin’s history. The only biggest drop has occurred 9 years ago, speaking precisely in October 2011.

bitcoin extraction is more difficult

Bitcoin miners to capitulate?

Difficulty correction completes so-called “miners surrender cycle”.

In short, let’s say we are at the point where Bitcoin mining is highly profitable. It makes more miners join pools, which increases hashrate. As a result of that, mining difficulty increases, margins become smaller, but mining is still profitable, so more and more miners are encouraged to join the network.

This cycle lasts, until some of miners are not capable of bringing extraction on time. Some of them are forced to liquidate the amount of newly extracted coins. At some time, they give up and extraction process is stopped. Hashrate goes down, along with mining difficulty which gets a hard reset.

What does all this mean? Drastic decrease of mining difficulty may lead most of miners with older mining hardware to leave the market. Bitcoin extraction requires great amounts of electricity and computing power. Bitcoin mining hardware is not cheap either. Miners could pay for the extraction by selling coins they have gathered so far, but when Bitcoin price goes down, the profitability also goes down. As a result of that, miners with older hardware sell most of their coins and eventually leave the market.

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