ViaBTC | BTC Mining Difficulty Hits a Record High, While Returns on Hashrate Fall to an All-time Low

According to CoinGecko data, the Bitcoin price has continued to stay at the low point in the previous 30 days. The difficulty of the network, however, has experienced two significant increases in a row. The mining difficulty was increased by 13.55% to 35.61 T at block height 758,016, followed by another difficulty change at block height 760,032 when the mining difficulty jumped by 3.44% to 36.84 T.

This is unusual. If you are familiar with the principle behind Bitcoin mining, you should know that Bitcoin’s difficulty adjustment mechanism is designed to keep a block coming out within a given time, usually every 10 minutes. Without this mechanism, miners would be able to find a block in just a few seconds as the hashing power of mining machines gets higher, and as a result, there would be a lot of Bitcoins circulating in the market in a short period of time, causing a devastating effect on their value.

Well aware of that consequence, Satoshi Nakamoto introduced difficulty adjustment in the Bitcoin whitepaper. If the mining time of the latest 2,016 blocks is shorter than that of the previous stage, which means there is more hashing power during this period, the system will increase the difficulty of mining. Otherwise, the system will reduce mining difficulty since there must be a loss in hashing power in this period. In order to prevent difficulty from changing too fast, the difficulty adjustment is restricted to a factor of 4. In other words, the maximum range of a single adjustment is 400%.

According to the market law, under the current bear market cycle, the unsatisfactory cryptocurrency price and the soaring energy price make payback time light years away, and there should be a significant reduction in hashing power. However, recent increases in difficulty may indicate that Bitcoin miners are not so much concerned about the short-term price rise or fall anymore.

Or perhaps, today’s Bitcoin miners aren’t the arbitrageurs back in those days. Let’s see what the market has gone through these years: Bitcoin mining was phased out by China in 2021; power supply for mining has been rationed by regulators, and energy price has surged this year. Under these circumstances, individual or small Bitcoin miners have got knocked out, and mining resources have tilted in favor of large institutions. Only the highly centralized mining mode can remain profitable in this tough bear market.

According to relevant data, the Bitcoin mining company CleanSpark purchased 2,861 mining machines and 1,061 Whatsminer M30S machines from June to July; Riot Blockchain has deployed more than 40,000 mining machines up to now; this July, Core Scientific paid Bitmain for the 100,000 mining machines ordered last year. Large mining companies such as Bitarms, Argo Blockchain, Hut 8 Mining, and Greenidge have also acquired a large number of mining machines.

Large mining companies can deploy the tens of thousands of mining machines they have near power stations and enjoy very low electricity prices. At the same time, they can make full use of the waste heat produced by these mining machines for greenhouse planting, urban heating, etc. These are the advantages that individual or small miners do not have. After squeezing mining costs to the utmost, large mining companies can keep their machines running and even redeploy them even as returns on hashrate fall to historic lows.

Circumstances change with the passage of time. The legend of getting rich overnight via crypto mining may hardly reappear in today’s world. Miners have suffered too much in just over a year, and even Ethereum, the world’s second-largest cryptocurrency, has bid farewell to the era of mining machines. As a large number of small miners leave this field, large crypto companies are becoming the main force of mining.

If Bitcoin is a social experiment, it is undeniable that this experiment is progressing for the better, and centralized mining is the only way forward. Perhaps, those individuals who still stick to mining are true believers.



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