Bitcoin mining difficulty was adjusted downwards 15.13% on 3 December 2018, the sharpest percentage decrease in difficulty since November 2011, and by far the biggest downward adjustment in difficulty by magnitude. This follows a 7.39% downward adjustment on 16 November.
Overall, Bitcoin’s mining difficulty has fallen from 7.45 trillion in early October to 5.65 trillion currently. This has coincided with a decrease in Bitcoin’s hash rate from a record high of 62 EH/s to 32 EH/s as of 2 December. This implicitly suggests that 30 EH/s of Bitcoin’s mining hash rate, which represents billions of US dollars of mining equipment, has been turned off due to no longer being profitable. The driving force behind this is the fall in Bitcoin’s price from USD 6,500 to the USD 3,500-4,000 level during the latter half of November 2018.
The Bitcoin mining difficulty adjusts every 2,016 blocks, which is roughly every two weeks, in order to maintain Bitcoin’s block time at 600 seconds. This is because if Bitcoin’s hash rate rises, then block times become shorter at constant difficulty, and if Bitcoin’s hash rate decreases then block times become longer. Indeed, Bitcoin’s block time had risen to 700 seconds before the most recent difficulty adjustment took effect, so the Bitcoin network was much slower than usual this past week. Without difficulty adjustments, the total supply of 21 million Bitcoins would have been mined already, which would have led to strong downward pressure on Bitcoin’s price, as well as a quick end to the Bitcoin mining industry as we know it. Further, this would lead to the Bitcoin network being much less secure, which is unacceptable, and a primary reason as to why periodic mining difficulty adjustments are essential.
The downward difficulty adjustment is actually good news for Bitcoin miners that are still mining, since the 20% decrease in mining difficulty over the past month directly correlates to a 20% increase in Bitcoin mining revenues per unit of hash rate. Increases in mining profits will likely be short-lived, however, since a significant fraction of that 30 EH/s of rigs which have been shut off due to lack of profitably will likely be turned on again.
Logically, the 20% increase in Bitcoin mining profits per unit of hash rate is a good environment for new miners to enter the game, but the abundance of mining rigs in the world that are sitting idle will probably beat new miners to the punch.
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