Bitcoin (BTC), which was $69,044.77 at the Nov 10th 2021 high, has seen its price drop by over 40% since 2022.
The network’s ability increase miners difficulty in obtaining Bitcoin has not been affected by price volatility. Bitcoin’s difficulty has reached a new ATH after two months of increased competition from miners. After the July lows, the hash rate has been steadily climbing at 45% for 6 months.
The overall computational power determines the Bitcoin network’s difficulty. This corelates to the difficulty in verifying transactions and mining BTC.
Miners face more opposition when trying to confirm a block or get its reward. Those miners who are unable to catch up with the others have been forced out of the race. As they decide the feasibility of current operations, this dilemma of miners trying to secure the network and make enough profit is likely to persist.
The network’s hash rate was also measured and reported that it had reached new ATHs in line with a similar trend to Bitcoin’s difficulty metrics. As the Bitcoin network is at its highest security level, the more hashing power it uses, the more distributed work is done for every transaction that occurs on-chain.
There is no consensus on how to calculate these metrics so different hash rates have been reported over the past few weeks. Despite all the different methods used, there is a consensus that the hash rate as well as the mining difficulty have been increasing since July 2021.
The difference between Bitcoin’s difficulty and hash rate
Bitcoin mining refers to adding transactions to the Bitcoin blockchain. Miners use proof-of work (PoW) to compete in solving mathematical problems that validate transactions.
The Bitcoin hash rate is the number of hashes that miners have created to solve a given block or the current Bitcoin block. This is how new transactions are added to the blockchain system.
Bitcoin’s hash rate is measured in hashes per sec (H/s). To mine successfully, miners require a high hashrate.
The difficulty and hash are both very large numbers that are expressed in bits. Therefore, for the operation to be profitable, miners simply need the hash to equal the difficulty.
The difficulty of Bitcoin is determined by how difficult it is for miners produce a hash lower than the target hash. It fluctuates between exponential growth and shrinkage depending on how many miners compete to access the network.
To maintain a constant block-time, difficulty is adjusted every 2,016 Bitcoin blocks (or approximately two weeks). This refers to the time it takes to find each block while mining.
Miners aim to find blocks every 10 minutes. The difficulty of finding Bitcoin increases if miners solve blocks more frequently than 10 minutes on average. The difficulty drops if miners find Bitcoin less frequently than once every 10 minutes.
There is a greater chance that the correct hash will be found quickly if there are more miners online. Blockchains are designed to add blocks and release new coins at a predictable rate. The difficulty is therefore programmed to adjust after a certain number of blocks in order to maintain that consistency.
The numbers that make Bitcoin difficult
Since hitting ATH, Bitcoin’s difficulty has been steadily increasing for each difficulty adjustment of the network. This is independent of any measuring tools.
To solve the equations used to process transactions on the blockchain, miners must work harder. This component is the most fundamental to Bitcoin network. It keeps mining stable, regardless of price, sentiment, or black swan events.
Both the hashrate and mining difficulty have continued to increase since July’s low point. According to CoinWarz (1 exahash = 1 trillion hashes), the hashrate dropped to 69.11 per second (EH/s). While mining difficulty fell to 13.6 trillion hashes, according to CoinWarz.
On-chain analysis tools showed that the mining difficulty hit an ATH at 27.97 trillion hashes on February 18, while the hashrate was then 186.77 (EH/s).
The previous ATH was at 26.64 trillion hashes and a hash rate 173.57 (EH/s).
Although they are two distinct factors, the difficulty and hash rate show some correlation.
Recently, the hash rate of the network’s network has reached new ATHs. Bitcoin’s hashrate reached 224.17 on February 14, (EH/s).
Adjustment of Bitcoin difficulty
On March 3, the latest Bitcoin difficulty adjustment saw a negative correction by 1.49%. This brought the difficulty to 197.19 exahashes. This is the first decrease this year, after six consecutive increases. This metric adjusts the mining effort to maximize miner participation, but doesn’t affect the overall upward trend in mining difficulty.
The Bitcoin mining difficulty adjusts every 2016 block to maintain block time, supply issuance, and block time. Executive Order 6102 of the United States government prohibited citizens from holding gold. 2016 blocks 6102 Order The symbolism of #Bitcoin’s is amazing.
— cryptob0t.eth, February 21, 2022 (@thecryptob0t).
Blockchain.com data shows that the six largest global mining pools have produced 315 blocks, which is more than 56% of the total amount. F2Pool, AntPool, and F2Pool contributed the greatest hash power.
The Bitcoin fundamentals may differ from the volatility of BTC prices. The rising hash rate trend suggests that miners remain optimistic about the profitability of their operations over longer timeframes.
Price has always followed the hash rate. This trend is being relegated by current macroeconomic events, as the fundamentals continue to rise while spot prices experience uncertain volatility.
The next Bitcoin halving, and beyond
As the rewards are lower, the amount of BTC that miners will receive for adding transactions to the blockchain will decrease. As block rewards are reduced by half, the next Bitcoin halving will see Bitcoin production costs double.
The Bitcointalk forum featured a discussion by Satoshi Nakomoto, pseudonymous creator of Bitcoin.
The production cost is what determines the price of any commodity. Production slows down if the price is lower than cost. Profit can be made by selling more and generating more. The difficulty of producing more coins would also increase, which would push the cost of producing towards the price. Later years, when the new supply of coins is small, the market price will determine the production cost more than the other.
Historical data about pivotal dates such as previous Bitcoin halvings shows that, unless an unexpected black-swan event like last year’s when China banned Bitcoin mining from being mined, Bitcoin difficulty will continue to rise.
Bitcoin is not interested in the drama of the #Bitcoin mining industry. This is something that few people understand.
— Parman – Bitcoin Private Key Whisperer. Mate (@parman_the). January 7, 2022
Bitcoin is an energy-intensive PoW network. The basic infrastructure of Bitcoin was designed to balance demand fluctuations and supply drops. Bitcoin is a deflationary asset because it can be changed in price. Bitcoin will increase in difficulty and hashrate as long as miners get economic incentives to keep their operations profitable.
If the price of Bitcoin does not increase in proportion to the decrease in rewards, miners will be unable to compete. To stay in business, miners will have to be efficient. This includes developing new technologies that generate more bitcoins per second and consume less energy.