In a riveting turn of events, Bitcoin mining difficulty recently reached unprecedented levels, hitting the 86.39 trillion hash mark ahead of the BTC halving. This primarily aligns with the sudden rise in Bitcoin miners rushing into mining as many coins as the 2024 halving approaches, resulting in higher hash rates that, in turn, offer higher network security.
BTC Mining Spikes Ahead Of Halving: What’s The Scoop?
Bitcoin miners race to mine as many coins as possible ahead of the upcoming halving, a four-year recurring event, since it significantly reduces rewards for mining new blocks. Miners anticipate this event negatively because it reduces the rate at which new BTC tokens are created. As a result, they try to accumulate as many coins as possible before the halving occurs, resulting in a spike in mining activity, as mentioned above.
Intriguingly, the rush of Bitcoin miners typically increases the overall hash rate of the Bitcoin network. This higher hash rate further enhances the network’s security by making it more difficult for any single entity to manipulate the blockchain or conduct malicious activities, adding a tint of optimism to the token.
Notably, Bitcoin mining’s difficulty gauges how hard and time-consuming it is to mine a new block or solve mathematical puzzles under Bitcoin’s proof-of-work (PoW) consensus mechanism. Further, BTC mining difficulty adjustment occurs every 2,016 blocks, or approximately every two weeks, as Bitcoin is programmed to self-adjust the difficulty level to maintain a target block time of 10 minutes.
Meanwhile, with the surge in mining difficulty, BTC’s price witnessed quite a flux in the past 24 hours.
Also Read: Bitcoin Options Expiry: How Traders Are Pricing For Bitcoin Halving
Bitcoin Price Flux: A Closer Look
As of writing, the Bitcoin token’s price noted a marginal 0.14% jump in the past 24 hours and is currently trading at $70,901. Notably, the token’s chart, per CoinMarketCap’s data, showcased a highly volatile movement over the past day, with 24-hour lows and highs of $69,571.81 and $71,256.24, respectively. This volatile movement aligns with the the rise in mining difficulty, as miners encounter burgeoning technical hurdles with the spike in miners partaking in this event.
Nonetheless, a tidal wave of optimism in the market persists with the upcoming BTC halving, as historical data fuels bullish sentiments on the token’s price action post-halving.
Also Read: Canada’s British Columbia Seeks To Block Bitcoin Mining Operations
The presented content may include the personal opinion of the author and is subject to market condition. Do your market research before investing in cryptocurrencies. The author or the publication does not hold any responsibility for your personal financial loss.
Key Takeaways
- Bitcoin mining difficulty has surpassed 50 trillion hashes for the first time ever
- Higher difficulty means more competition and less profit for miners, but also more security for the Bitcoin network
- Higher mining difficulty means greater energy input required to mine Bitcoin, meaning greater cost for miners
- Mining stocks have underperformed Bitcoin significantly over the last year
It has never been so difficult to mine Bitcoin. Literally. Bitcoin mining difficulty continues to rise incessantly, surpassing the 50 trillion hash mark for the first time ever last week.
What is Bitcoin mining difficulty?
If it were not for the Bitcoin mining difficulty adjustment, blocks would be appended to the blockchain at an increasing speed as more miners joined the Bitcoin network. In such a way, the Bitcoin mining difficulty adjusts via an automatic algorithm to ensure blocks are appended to the ever-growing blockchain at consistent 10 minute intervals.
As more miners join the network, difficulty rises. In such a way, blocks do not get discovered quicker as more miners join the network. This difficulty adjustment is thus vital to ensure the supply of Bitcoin is released at a pre-programmed pace, as outlined by the anonymous Satoshi Nakamoto in the Bitcoin whitepaper.
This explains how, in the early days, mining could be carried out on a personal laptop, because Bitcoin was so niche and miners were so few and far between – hence the mining difficulty was far lower. This is why you hear stories of miners who find (or lose) stashes of Bitcoin on old hard drives which were close to worthless when they were mined.
Today, however, Bitcoin is well and truly in the mainstream, and mining difficulty has risen accordingly. Most mining is carried out by supercomputers, while there are many public companies carrying out the task.
What does increasing mining difficulty mean?
Mining difficulty is increasing because more computational power is being put towards Bitcoin mining. The hash rate is what we refer to as the computational power of the Bitcoin network. Looking at the chart, this is at an all-time high – which makes intuitive sense, given mining difficulty is also at an all-time high.
For the Bitcoin network as a whole, this is a good thing. Bitcoin’s hash rate is a crucial indicator of the security of the network. A higher hash rate means Bitcoin is more resistant to an attack by a malevolent actor. This is because the higher the hash rate, the more expensive and implausible it is for an actor (or a group of actors) to seize control of 51% of the network, when Bitcoin could be exposed to what is known as a 51% attack (coins could be double spent and the veracity of the blockchain would be in doubt).
However, there are downsides to this, too. I detailed this in depth last week in a report on Bitcoin mining stocks. In summary, more hash power means greater cost for miners, as the increased difficulty means a greater amount of energy is required to power the computers working to validate the transactions on the blockchain. This is why miners margins are getting cut into as more miners join the network (rising electricity costs also do not help).
“The rapid decline in the Bitcoin price, down from $68,000 at the peak of the bull market in late 2021, has obviously hurt the mining industry”, says Max Coupland, director of CoinJournal. “However, that is far from the only problem facing miners. The mining difficulty hitting an all-time high means greater amounts of energy are required to mine, at a time when inflation and the Russian war have pushed the price of energy up immensely”.
The mining industry is hence extremely volatile, as not only is it sensitive to the volatility of Bitcoin itself, but it also suffers from rising energy costs. The below chart demonstrates how mining stocks have underperformed Bitcoin in recent times. It looks at the Valkyrie Bitcoin Miners ETF, which tracks mining companies and was launched in February 2022.
With Bitcoin mining difficulty hitting an all-time high, racing past the 50 trillion hash mark for the first time ever, things won’t get any easier for miners. However, like always, it will ultimately come down to the Bitcoin price. With block rewards and transaction fees recouped in the form of Bitcoin, and the entire industry built upon this asset, mining companies will go as far as the Bitcoin price takes them.
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