Bitcoin, the leading cryptocurrency by market capitalization, has seen its mining difficulty reach a new record high on Sunday, Nov. 26, 2023, as more miners compete to discover new blocks and earn rewards.
Bitcoin mining difficulty is a measure of how hard it is to find a valid hash that satisfies the proof-of-work algorithm, which is the process of validating transactions and creating new blocks on the Bitcoin network. The difficulty is adjusted every 2016 blocks, or approximately every two weeks, to ensure that the average time between blocks remains around 10 minutes, regardless of the total computing power of the network.
The difficulty is determined by a formula that compares the actual time it took to mine the last 2016 blocks with the expected time of two weeks. If the actual time is shorter than the expected time, the difficulty increases; if the actual time is longer than the expected time, the difficulty decreases.
Why is Bitcoin Mining Difficulty Important?
Bitcoin mining difficulty is important for several reasons. First, it ensures that the Bitcoin network remains secure and decentralized, as it requires a lot of resources and energy to participate in the mining process. This makes it harder for any single entity or group to dominate the network or launch a 51% attack, which is a scenario where a malicious miner or coalition of miners controls more than half of the network’s hashing power and can manipulate the blockchain.
Second, it affects the profitability and sustainability of the mining industry, as it determines how much reward a miner can earn for finding a new block. The reward consists of two components: the block subsidy, which is the newly minted bitcoins, and the transaction fees, which are the fees paid by the users who send transactions. The block subsidy is halved every 210,000 blocks, or approximately every four years, as a way to limit the total supply of bitcoins to 21 million. The transaction fees, on the other hand, depend on the demand and supply of the network’s limited block space.
As the difficulty increases, the miners have to invest more in hardware, electricity, and maintenance to keep up with the competition and maintain their profitability. This also leads to more innovation and efficiency in the mining sector, as miners seek to optimize their operations and reduce their costs.
How High is Bitcoin Mining Difficulty Now?
According to data from crypto.news, Bitcoin mining difficulty reached a new all-time high of 37.73 trillion at block height 772,128, which was mined at 4:11 p.m. Eastern time on Sunday, Nov. 26, 2023. This represents a 10.26% increase from the previous difficulty of 34.09 trillion, which was set on Nov. 11, 2023.
The difficulty increase was the result of a surge in the network’s hashrate, which is the total amount of computing power dedicated to the Bitcoin network. The hashrate reached a new peak of 361.20 exahash per second (EH/s) on Jan. 6, 2023, surpassing the previous record of 347.16 EH/s set on Nov. 12, 2022. The average hashrate during the last 2016 blocks was around 268.9 EH/s, according to crypto.news.
The high difficulty and hashrate indicate that the Bitcoin network is more secure and robust than ever, as more miners are contributing to the network and competing for the rewards. However, it also means that the mining industry is facing more challenges and pressure, as the cost of production and the environmental impact of mining are increasing.
According to macromicro.me, the estimated cost of Bitcoin production is currently $17,377 per unit, while the price of Bitcoin is trading at $20,876 per coin at the time of writing. This means that the miners are still making a profit, but the margin is shrinking. Moreover, the mining difficulty is expected to increase further, as more miners are joining the network and more advanced and efficient mining equipment are being deployed.
What are the Implications of Bitcoin Mining Difficulty for the Future?
Bitcoin mining difficulty is one of the key factors that shape the future of the Bitcoin network and the cryptocurrency industry. As the difficulty increases, the network becomes more secure and resilient, but also more competitive and demanding. This has several implications for the miners, the users, and the regulators.
For the miners, the difficulty increase means that they have to constantly upgrade their hardware, optimize their software, and reduce their energy consumption to stay profitable and relevant. This also creates more opportunities for innovation and collaboration, as miners seek to improve their performance and efficiency. For example, some miners are exploring renewable energy sources, such as solar, wind, and hydro, to power their operations and reduce their carbon footprint. Some miners are also forming mining pools, which are groups of miners who share their resources and rewards, to increase their chances of finding a block and reduce their variance.
For the users, the difficulty increase means that the Bitcoin network is more reliable and trustworthy, but also more expensive and congested. This affects the user experience and the adoption of Bitcoin as a medium of exchange and a store of value. For example, some users may face higher transaction fees, longer confirmation times, and lower privacy, as they compete for the limited block space and rely on third-party services, such as exchanges and wallets, to access the network. Some users may also opt for alternative cryptocurrencies, such as Ethereum, Litecoin, and Bitcoin Cash, which offer different features and trade-offs, such as faster transactions, lower fees, and more functionality.
For the regulators, the difficulty increase means that the Bitcoin network is more decentralized and autonomous, but also more complex and challenging. This poses some regulatory and legal issues, such as taxation, anti-money laundering, consumer protection, and environmental impact. For example, some regulators may struggle to identify and track the transactions and activities of the Bitcoin network, as the network operates across borders and jurisdictions, and uses pseudonymous addresses and encryption. Some regulators may also face resistance and backlash from the Bitcoin community, as the network is designed to resist censorship and interference.
Bitcoin mining difficulty is a dynamic and crucial aspect of the Bitcoin network, as it reflects the state and health of the network and the industry. The difficulty is constantly adjusted to maintain the balance and stability of the network, as well as the incentives and challenges of the participants. The difficulty increase is a sign of the growing popularity and strength of Bitcoin, as well as the rising competition and pressure of mining. The difficulty also has significant implications for the future of Bitcoin, as it affects the security, profitability, sustainability, and scalability of the network.