Bitcoin Mining Difficulty Shoots Up 9 Percent, Experts Say It’S A Good Sign Despite Woes To Miners
By CNBCTV18.com IST (Published)
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Mining difficulty determines how hard it is for a miner to verify transactions, bundle them into a block and add it to the blockchain. It is measured on a scale of 0 to infinity, and on August 31, the mining difficulty stood as 30.97 trillion.
The last few days have been pretty rough on the Bitcoin fraternity, especially miners. Prices plummeted after the US Fed’s comment on increasing interest rates to combat inflation. As a result, BTC slipped from its $23,000 range and dropped to around $19,600. Such drops reduce the profitability of the mining process.
To make matters worse, mining difficulty has also increased in the second half of August, as per a report by BTC.com. Mining difficulty is measured on a scale of 0 to infinity, and on August 31, the mining difficulty stood as 30.97 trillion.
This figure represents a 9.26 percent increase since August 18, when the mining difficulty stood at 28.35 trillion.
As a result, the amount of computing power required during the mining process (hashrate) has also increased, jumping from 202.76 EH/s to 221.72 EH/s (EH/s = exahash per second) during the same period.
Mining difficulty determines how hard it is for a miner to verify transactions, bundle them into a block and add it to the blockchain. It is usually updated every 2,016 blocks (roughly twice a month or every two weeks), and the current reading is a touch under the all-time high of 31.25 trillion recorded in May 2022. The recent spike is also the second-highest increase this year.
The mining difficulty is adjusted based on the number of network participants. If there are few miners, the difficulty will drop. For instance, when China banned BTC mining in May 2021, the mining difficulty dropped by nearly 28 percent. However, when the number of miners increases, so does the mining difficulty.
“Bitcoin’s recent, if short-lived, run-up combined with the easing of heatwaves in some jurisdictions has contributed to more miners powering on and one of the largest jumps in difficulty this year,” said Zach Bradford, CEO of the mining company CleanSpark, to Decrypt.
However, while it will cause some immediate pain for miners, the increased difficulty is good for the network in the long run. It signals added participation in the mining process, which results in higher security for the Bitcoin network.
“A difficulty increase is an indicator of a strong and growing network, it’s actually a good thing,” said Co-Founder of Bitcoin miner LSJ Ops, Scott Norris, to Decrypt. Therefore, increasing mining difficulty should be seen as a positive sign, whereas “difficulty shrinking is the cause for concern.”
But increasing mining difficulty means more computational power is required to mine BTC, leading to higher electricity costs. Coupled with the recent price drop, the profitability of mining reduces significantly.
However, back in June, when the mining difficulty hovered between 30.28 trillion and 29.57 trillion, JPMorgan estimated that the cost to produce one Bitcoin per day was around $13,000, and Zach Bradford had an even lower estimate of $12,000. Therefore, while miners will feel the pinch of the increased difficulty, mining should continue to be a profitable venture.