The decline in value of the cryptocurrency market is seeing its reflection in the crypto mining business. In China an estimated 30% of the mining capacity has closed its farm. This has resulted in a decline in calculation difficulty for bitcoin miners. Blocks are now 15.1% easier to find, in order to maintain its estimated 10 minutes per block.
Currently the network is operating at approximately 32 TH/sec, which is down almost 50% from its 61.8 TH/sec peak on August 27th 2018. Bitcoin’s mining hash rate has seen a parabolic growth that slowly started in January 2016. In 2017 it kept going up, but its real growth sprint happened this year. While the crypto market was going down, the network’s difficulty kept going up. This makes it much more costly to obtain a bitcoin that’s declining in value. Therefore it makes sense that mining farms are closing their doors.
Every two weeks the Bitcoin network changes its difficulty in order to compensate for the addition of new machines in the network. In its past ten years the network has steady a steady increase in difficulty. Yet, a decrease in difficulty is quite rare.
This 15.1% drop in difficulty is the second biggest drop in history, according to XDEX chief analyst Fernando Ulrich. The biggest drop happened on November 1st 2011 (18%), followed by the recent 15.1% drop. After that coming October 16th 2011 (13.1%), December 27th 2012 (11.6%) and March 26th 2011 with 9.5%.
Some people believe this decline in computing power on the Bitcoin network is the beginning of the end. Professor of Finance Atulya Sarin from the Santa Clara University called this a ‘death spiral’, because bitcoin gets its value from the mining activities. While others call it a healthy market development.
What I think…
Personally I believe this is a good development. This lower difficulty could enable people to start mining at home again, opening up new revenue streams and new types of business. People can participate in creating a truly decentralized network.
Also published on Medium.