Bitcoin Mining Difficulty Sees Largest Downward Adjustment of the Year

By May 4, 2021Bitcoin Business
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Bitcoin’s mining difficulty just fell 12.6%, the largest downward correction of the year, following mass miner outages in China’s coal-rich provinces.

Mining difficulty is a self-correcting and internally referenced score which dictates how hard it is for miners to find the next block in Bitcoin’s blockchain (Bitcoin’s starting difficulty was 1 – every increase from this indicates exponentially increasing difficulty). The difficulty adjustment ensures that blocks are added to the chain at a steady pace, roughly every 10 minutes on average.

Bitcoin’s mining difficulty is currently 20.608 trillion, according to data queried from this journalist’s node. This is down from the 23.581 trillion difficulty Bitcoin set nearly two weeks ago, an all-time high.

The sizeable drop corrects for the loss of hashrate the Bitcoin network experienced following coal mining accidents and subsequent inspections in Xinjiang. As they lost their chief sources of energy, bitcoin (BTC, +1.43%) miners in this coal-heavy region went offline and Bitcoin’s hashrate fell by roughly a quarter.

Some of these miners are back online and Bitcoin’s hashrate has recovered, but as the difficulty adjustment suggests, more miners need to come back online still before the network is at the levels it sported a few weeks ago.

“The event in Xinjiang highlights that a major portion of hashrate production still occurs in China. Seasonal and government changes have the potential to swing hashrate levels and have profound impacts on network difficulty and mining economics,” Ethan Vera, the CFO of North American mining pool Luxor, told CoinDesk.

“Bitcoin’s difficulty adjustment algorithm is working exactly as planned, compensating for slower block times with a downward adjustment. While the 2,016 block epoch is not perfect, it has been battle tested against all sorts of events and always done its job.”

Vera expects the substantial correction to put miner profitability over 40 cents per terahash, meaning roughly “90% mining margins” for miners on average.

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