Bitcoin’s mining difficulty rate adjustment is one of the key innovations behind the success of the Nakamoto consensus. As the amount of miners increases or decreases the difficulty of Bitcoin’s PoW increases or decreases, every 2016 blocks. Today we saw a nearly 7% increase.
Mining difficulty increased, but what does it mean for Bitcoin?
Bitcoin’s mining difficulty rate recalibrates roughly every two weeks, or 2016 blocks. This means that as more miners add to the network’s hash rate, the difficulty of the PoW increases, making finding new block rewards more difficult. If miners were to stop mining en masse, the difficulty would decrease to keep the equilibrium.
Tomorrow's #bitcoin difficulty adjustment (which keeps time between blocks at 10 minutes, regardless of hashrate) will be a massive +7%! No sign of weakness 2 months before the halving. 🔥 https://t.co/zMdxlteR6Z pic.twitter.com/xtRYcQJgoD
— PlanB (@100trillionUSD) March 8, 2020
Bitcoin’s PoW hash rate is the amount of computing power one would need to do a reorg attack or to change the blockchain. Bitcoin’s hash rate is currently at 121,637,666 tera hashes. As hash rate increases and more miners secure the network, Bitcoin’s price sometimes follows it up.
difficulty adjustment appr. +6,8% today.
I marked the adj. of 5%+ (relevant adj.) from 2015.
green = price higher/equal until next relevant Adj.
red = price lower until next relevant adj.
a relevant adj. doesn´t lead to higher prices in general but often. pic.twitter.com/wSJXOKfKRz
— ฿itcoin-Printer (@BitcoinPrinter) March 9, 2020
Bitcoin’s hash rate difficulty increased by almost 7% today at 5:50 am. The next scheduled difficulty rate recalibration will take place on March 21st at the very earliest, or in 2016 blocks. As difficulty increases it makes the network much harder to attack.
To attack the Bitcoin network, an attacker would have to provide more computing power than all the other thousands of computers currently mining Bitcoin combined. This kind of attack becomes economically unfeasible as the hash rate grows. Smaller PoW chains with less hash rate are more vulnerable to attacks from malicious actors.
Hash rate increasing before the halving is seen as bullish
One example of the FUD that surrounds Bitcoin around the halvings, is the fear that the reduced block reward for miners will make mining unprofitable and cause a death spiral of decreasing hash rate, as miners capitulate.
This is not actually how it works. Mining is very competitive and successful mining outfits are usually operating on very thin margins of profitability. Instead of causing a death spiral, it usually causes smaller less profitable miners to be absorbed by larger more efficient firms.
To see the difficulty increase this close to the halving is usually perceived as being very bullish. The increased cost of production of new BTC, and reduced supply of newly minted coins, adds upward price pressure causing prices to rise.
Miners who manage to stay in operation and survive the halving, usually become more profitable as a result.
Much of the media hype surrounding the halving usually causes an onslaught of new users onboarding also, which kickstarts demand for BTC, also causing prices to rise.
Although mining as an industry tends to centralize as larger miners survive and smaller miners die off, they still end up becoming more profitable incentivizing more miners, even though rewards are less frequent, they are more valuable.
What do you think of Bitcoin’s increased difficulty adjustment? Let us know in the comments!
Images via Shutterstock, Twitter @100trillionusd @BitcoinPrinter