Bitcoin Mining Difficulty Undergoes Largest Drop Ever – Price Jumps
The mining difficulty of the Bitcoin network has dropped by 27.9%, as the network adjusts to the massive drop in hash rate. This records the biggest decrease in mining difficulty since the network went live in 2009 — and ended up even higher than last week’s estimates.
The network’s automatic stabilizing mechanism started in the aftermath of a strict crackdown in China on the country’s cryptocurrency industry.
At 6:25 UTC Saturday, mining difficulty plunged by nearly 28% at block 689,471.
The decline in difficulty led to corresponding plunge in transaction fees, which in turn may have contributed to a $1,000 surge in the price of the leading cryptocurrency on anticipation of a spurt in transactions, according to one observer.
In recent trading, the price of BTC was at $34,738, up 3.58% in the last 24 hours. Before the reduction in mining difficulty, BTC was about $33,700.
Charlie Morris, CIO of ByteTree Asset Management, tweeted hours after the difficulty cut that fees had dropped to $6 from $10 yesterday.
Nice #bitcoin price move as the downward difficulty adjustment passes as expected this monrning. Fees already $6 over the past hour compared to $10 yesterday. Hopefully transactions can now start to pick up. They need to. pic.twitter.com/n1iuwP5FXM
The adjustment marks the third straight decline in mining difficulty, the first time such a trend has happened since December 2018. On May 29 and June 13, the mining difficulty dropped by 16% and 5%, respectively, according to mining service provider BTC.com.
Bitcoin mining difficulty Explained
The Bitcoin network updates its mining difficulty level every 2,016 blocks, which is roughly every two weeks. This is designed to make sure blocks are produced every ten minutes or so, despite a fluctuating hash rate.
And in this case, the hash rate has certainly been volatile. Since the previous adjustment on June 13, Bitcoin’s seven-day moving average hash rate has fallen from 136.47 EH/s to 85 EH/s — down 35%.
That’s what happened as Chinese authorities pushed to tamp down cryptocurrency trading and mining, since the country has historically hosted such a large portion of the Bitcoin network’s hashpower. Local authorities in China’s Xinjiang Uygur Autonomous Region, the Inner Mongolia Autonomous Region, Qinghai province and Sichuan province followed the top-down initiative by announcing plans to shut down some or all bitcoin mines.
This lower hash rate led to a slower rate of block production as the remaining hashing power was unable to keep up with the high difficulty level. For the last two weeks, blocks were produced nearly every 13.9 minutes on average, much higher than usual, based on The Block’s calculation.
On July 1, it even took 129 minutes to produce a block, the longest time since 2011, although it’s worth noting that multiple factors come into play here, including the inherent variance in block times.
During this most recent difficulty period, the mean hashrate, a measure of total computational power contributed to the blockchain through mining, stood at 87.7 exahashes per second, the lowest since December 2019. That’s down from about a peak of about 180 exahashes per second in mid-May.
As a result, Bitcoin’s mean block time slowed significantly, with some blocks taking as long as 23 minutes on Sunday, June 27, though the network appears to have sped up slightly since then.
The Bitcoin algorithm is programmed to self-adjust the difficulty level every 2,016 blocks, or roughly every two weeks, in order to maintain a target block time of 10 minutes.
So that’s what happened overnight, as the blockchain’s automatic stabilizer mechanism kicked in to incentivize more miners to join the network.
Today’s difficulty drop will make it easier for the remaining miners to find blocks at a rate closer to the 10-minute target.
Though a decline in Bitcoin’s hashrate means it is slightly less resilient against attacks, the news bodes well for active miners.
Will Foxley from Compass Mining commented:
“Difficulty adjustment has a few interesting properties in the real world too, particularly for miners. When difficulty adjusts downwards, you make more bitcoin if you can stay online. When it goes up, you make less as more miners are participating.”
According to Glassnode:
“Miners who remain operational are likely to become even more profitable over the coming weeks, unless price corrects further or migrating hashpower comes back online.”
