It’s gotten even harder to mine Bitcoin. Bitcoin’s mining difficulty is set to exceed the 40 trillion mark for the first time this weekend. According to on-chain data, the mining difficulty will increase by an estimated 10% from 39.16 trillion to 43.2 trillion.
Bitcoin Mining Difficulty Set For Record Levels
The mining difficulty expresses the number of iterations miners must execute to obtain the hash of a Bitcoin block. Therefore the higher the number, the more difficult it is to solve a block leading to lower mining profitability.
This metric is updated every two weeks, and increased difficulty is attributed to when more miners enter the Bitcoin network. Miners will receive reduced BTC production in the next 12 days, or approximately 2,016 blocks, due to the increased mining difficulty.
Related Reading: Bitcoin Correlation With The S&P 500 Falls To FTX Collapse Levels, But Why?
Mining difficulty has been climbing steadily in the past few months due to the price resurgence of Bitcoin. At the previous all-time difficulty on January 16, 2023, the Bitcoin network peaked at 39.35 trillion but experienced a 0.49% reduction.
Since then, the difficulty has stayed around the 39 trillion mark. During this period, Bitcoin hash rate witnessed a significant rise and hit an all-time high on February 16, 2023.
Price Resurgence Has Attracted Miners
For much of 2022, the bear market that bitcoin (BTC) went through led to many miners on the network taking losses. Some miners had to diversify to sustain their activity, while others stopped mining and sold their equipment. This, of course, led to low bitcoin mining difficulty and hash rate.
However, things have changed in 2023. Firstly the market price of Bitcoin has increased by more than 40% from its lowest point recorded in November 2022 ($15,670). This has attracted the attention of miners looking to benefit from the trend.
Secondly, the rise of Ordinals non-fungible tokens (NFTs) on the Bitcoin network has led to increased activities. Due to the larger transactions that these NFTs incur, mining fees have returned to attractive levels.
Related Reading: Bitcoin Attracting Banks: Study Shows Over 130 US Lenders Are Exploring Crypto
Entries for Ordinals NFTs are made in a part of the Bitcoin transaction called the Witness. For this reason, they pay a minimum commission of 1 sat/byte, approximately a quarter of what transactions pay to send bitcoins (BTC).
However, because Ordinals transactions are heavier than “regular” ones, they end up paying higher fees, often over $20. This, of course, depends on the weight of the transaction and the priority assigned to it.
To provide a context, miners have generated more than $800,000 in fees from Ordinal NFTs in less than a month, according to data from Dune analytics.
The development of Ordinal NFTs has not been without scrutiny as critics believe that it causes congestion on the Bitcoin network leading to high transaction fees. Nevertheless, these factors have attracted miners and led to increased mining difficulty.
As of the time of writing, Bitcoin is currently trading at $23,300.
Featured Image from Unsplash.com, charts from Dune Analytics, and TradingView