The Bitcoin network difficulty, a measure of how hard it is to mine new blocks, has reached a new all-time high of 48.71 trillion, following the fifth consecutive increase since February 24, 2023. The difficulty adjustment reflects the growing hashrate of the network, which indicates more miners are competing for the block rewards and transaction fees.
Bitcoin network difficulty is a parameter that adjusts every 2016 blocks, or approximately every two weeks, to ensure that the average time between blocks remains close to 10 minutes. The difficulty is determined by comparing the actual time it took to mine the previous 2016 blocks with the expected time of 14 days. If the actual time is shorter, the difficulty increases; if the actual time is longer, the difficulty decreases.
The difficulty is directly proportional to the hashrate, which is the total computing power of the network. A higher hashrate means more miners are participating in the network, and more hash power is required to find a valid block. A lower hashrate means fewer miners are active, and less hash power is needed to solve the cryptographic puzzle.
The difficulty adjustment is one of the key features of Bitcoin that ensures its security, decentralization, and scarcity. By adjusting the difficulty, the network maintains a predictable and stable block production rate, regardless of the fluctuations in the hashrate. This also ensures that the total supply of 21 million bitcoins will be reached around the year 2140, as the block reward halves every 210,000 blocks, or approximately every four years.
Why Is Bitcoin Network Difficulty Increasing?
The Bitcoin network difficulty has increased by 22.62% since block height 778,176, which was mined on February 24, 2023. The latest adjustment, which occurred at block height 786,240 on April 20, 2023, was a 1.72% increase from the previous level of 47.87 trillion.
The difficulty increase reflects the rising hashrate of the network, which has reached new highs in recent weeks. According to coinwarz.com, the hashrate peaked at 440.80 exahash per second (EH/s) on April 18, 2023, at block height 786,013. As of April 20, 2023, the hashrate was around 352.99 EH/s, which is still higher than the average of 337.13 EH/s in March 2023.
The growing hashrate indicates that more miners are joining the network, or existing miners are upgrading their equipment, to take advantage of the high profitability of Bitcoin mining. According to bitinfocharts.com, the average daily revenue per terahash per second (TH/s) of mining power was $0.36 on April 20, 2023, which is higher than the average of $0.32 in March 2023. The revenue per TH/s is calculated by multiplying the block reward and the transaction fees by the probability of finding a block with a given hash power, and dividing by the difficulty.
The high profitability of Bitcoin mining is largely driven by the high price of Bitcoin, which has increased by more than 200% since the beginning of 2023. Bitcoin reached an all-time high of $30,984 on April 14, 2023, according to coinmarketcap.com, before dropping below $29,000 on April 20, 2023. Despite the recent correction, Bitcoin is still up by more than 3% in the past month, and more than 800% in the past year.
What Are the Implications of Bitcoin Network Difficulty Increase?
The increase in Bitcoin network difficulty has several implications for the mining industry and the Bitcoin ecosystem. On the one hand, it shows that the network is more secure and resilient, as more hash power is required to launch a 51% attack, which is a scenario where a malicious miner or a group of miners controls more than half of the network’s computing power and can manipulate the blockchain. According to crypto51.app, the estimated cost of a 51% attack on Bitcoin is $1.2 million per hour, as of April 20, 2023, which is higher than the cost of $1 million per hour on March 20, 2023.
On the other hand, the increase in difficulty also means that the competition among miners is fiercer, and the margins are thinner. Miners with older or less efficient hardware may struggle to cover their operational costs, such as electricity and maintenance, and may be forced to shut down or switch to other cryptocurrencies. This could lead to a temporary drop in the hashrate, and a subsequent downward difficulty adjustment, until the equilibrium is restored.
The difficulty increase also affects the users of the network, as it influences the transaction fees and the confirmation times. When the difficulty is high, and the hashrate is low, the blocks may take longer than 10 minutes to be mined, and the transactions may take longer to be confirmed. This could create a backlog of unconfirmed transactions in the mempool, which is the queue of transactions waiting to be included in a block. To speed up their transactions, users may have to pay higher fees to incentivize the miners to prioritize their transactions. According to bitinfocharts.com, the average transaction fee on Bitcoin was $28.66 on April 20, 2023, which is higher than the average of $20.49 in March 2023.
The next difficulty adjustment for the Bitcoin network is expected to occur around May 4, 2023, based on the current block intervals and difficulty levels. According to btc.com, the estimated difficulty change is -1.5%, which means that the difficulty may decrease slightly for the first time since January 9, 2023. However, this estimate may change depending on the actual hashrate and block production rate in the next two weeks.