Bitcoin Mining Difficulty Sharply Drops as Hashrate Continues to Fall

By December 4, 2018Bitcoin Business
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The past few months have seen significant drops in bitcoin’s hash rate since peak in August. Undoubtedly a result of imploding prices forcing less stable mining operations to close doors, the declining hashrate creates controversy regarding specialized mining rigs and the state of the crypto market.

Bitcoin itself is not directly affected by the drop in hashrate due to the built in difficulty adjustment aspect. Bitcoin is mined by employing computing hardware to solve complex mathematical equations. In order to keep a consistent block writing time (about 10 minutes) and a regular flow of new bitcoin creation, the difficulty of these equations adjusts approximately every two weeks to account for new or departing miners from the pool.

Bloomberg estimates the cost of producing a new bitcoin is around $4,500 after taking mining hardware and electricity into account. With prices dropping below the $4,000 mark once again, it is likely that the continued lack of profitability is driving the closing of doors of major mining operations around the globe.

Sales of thousands of ASIC miners by the pound are seen in China as miners are no longer useful. Given that ASIC miners serve no other function besides mining cryptocurrencies, the potential ramifications of this e-waste and wasted capital will soon be seen. It is likely that newly planned mining operations will also be halted in the face of decreasing profitability.

According to blockchain.com, the hash rate currently sits at around 37.7 EH/s (3.7 E19 hashes per second). This sits at about 30 percent below peak in August. By product, a significant drop in difficulty rate by 15.1 percent has occurred. This is the second largest drop in difficulty rate of all time – the first being an 18% drop in January 2011.

While many mining operations close their doors, the question of centralization of mining power and hashrate bring worry to the decentralization of bitcoin. Concentration of hashrate opens bitcoin to the infamous 51 percent attack that would allow the hashrate controler to write their own, separate blockchain with altered transactions and fees.

The likelihood of such an event is still minimal as mining has been steadily increasing, even in the current bear market. It is natural that such a correction should occur, and the decreasing profitability in mining of bitcoin has only weeded out those who are not truly committed to Satoshi’s vision.