It just became more difficult and less profitable to mine for Bitcoin.
Every 2016 blocks or about every two weeks, Bitcoin resets how hard it is for miners to mine. By early Friday morning, as expected, the Bitcoin code automatically made it about 7.3% more difficult to solve a block.
Historically, this increase in difficulty is greater, but it is neither surprising nor alarming. But it’s the first significant surge since China’s mining ban came into effect, and confirms a trend we already knew was under way: some of the miners who used to be in China are finding new homes elsewhere.
And while minting Bitcoin may not be quite as lucrative as it was before the algorithm self-corrected, miners continue to make a lot more money now than they did before China’s crypto breakthrough in May.
“The hashrate is still 42.1% lower than it was in May 2021 when the China exodus took place,” said Jason Deane, an analyst at crypto consultancy Quantum Economics. This hash rate deficit means that those currently connected to the Bitcoin network are banking.
Come back online
When China kicked out all of its miners this spring, more than half of the computing power on the Bitcoin network went dark. Miners elsewhere in the world had to fill the gap. Fewer people and less computing power meant it took longer to verify transactions and mint new bitcoins.
So, like clockwork, the Bitcoin algorithm corrected itself for this deviation from the norm, and in July the network saw a completely unprecedented drop in difficulty of 28%. Suddenly it was easier to create new bitcoins, and the global mining collective was back to solving blocks of transactions in an average of ten minutes.
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This function of the Bitcoin code is a critical part of its network architecture.
This spring, an entire country – which accounted for 54% of Bitcoin’s total hashrate – went offline, and Bitcoin didn’t leave anything out.
“There was no downtime for the Bitcoin network. That’s actually the smartest part of Bitcoin software: adjusting the level of difficulty, ”said Bitcoin mining engineer Brandon Arvanaghi.
The entire episode was considered a “black swan” event for the industry and, according to crypto miner Alejandro de la Torre, also made a whole lot of people a lot richer.
Now, with the new adjustment, Deane tells CNBC that it’s essentially 7.3% less profitable to mine Bitcoin after upgrading.
“Assuming your energy costs and hashrate stay the same, the calculation really is as simple as it seems,” said Deane.
The difficulty adjustment also reflects the fact that the mining world has already hit rock bottom in terms of global hashrate. Miners have been online again quickly since the end of June.
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“We’ve seen the bottom of the hash rate decline, and everything goes from here,” said Mike Colyer, CEO of digital currency company Foundry, which helped bring over $ 300 million worth of mining equipment to North America.
“This next adjustment reflects the fact that the miners are expanding their capacities and connecting new machines. There are an enormous number of machines from China that need to find a new home, ”Colyer continued.
Rebuilding the Bitcoin Network
Some of the machines coming back online are the same ones that were hooked up across China.
“Most of these guys can’t move to the US because of capital constraints, because they don’t speak English and have never left the Sichuan area in their lives … instead, they sold all of their machines.” “said De La Torre, vice president of the Singapore-based mining pool, Poolin.
“The sales of these machines around the world are very active,” he said.
But many of the ASICs that come online come straight from the production lines of the world’s largest manufacturers, such as Bitmain and Whatsminer. These newer systems are more efficient, and Colyer says they get about twice the hash power for the same amount of electricity.
In fact, many mining insiders are predicting that most old-generation devices will never come back online, which means the entire network will become more efficient – and create more competition among miners.
“Newer machines have a significantly higher hashrate than their predecessors, so we will likely see the hashrate rise further to a new all-time high sometime in the next 12 months,” said Whit Gibbs, CEO and founder of Bitcoin mining services company Compass.
Several of these new machines are on their way to buyers right now, according to Deane. Some of the bigger players have tens of thousands of new ASICs to order that are slated to go online in the next 12 months.
“This means the difficulty will increase steadily, and probably quite significantly, over the same period,” said Deane.
Meanwhile, Colyer says expect difficulty adjustments of more than 10% each month from this point on. He believes it will take another nine to twelve months for the difficulty to double.
