230 Interactions, 4 today
This is just the second downward change of 2021, and it is Bitcoin’s biggest complexity reversal since a 16 percent drop on November 3, 2020.
Following mass miner outages in China’s coal-rich regions, Bitcoin’s mining complexity dropped 12.6 percent, the network’s highest downward correction of the year.
Mining difficulty is a self-correcting and internally referenced score that determines how difficult it is for miners to locate the next block in Bitcoin’s blockchain (Bitcoin’s starting difficulty was 1; any rise from this implies exponentially growing difficulty). The complexity environment ensures that blocks are consistently bound to the chain, about every 10 minutes on average.
The mining difficulty of Bitcoin is currently 20.608 trillion, according to data obtained from this journalist’s node. This is a decline from Bitcoin’s all-time high of 23.581 trillion set about two weeks earlier.
The big drop compensates for the Bitcoin network’s loss of hashrate as a result of the coal mining crashes and related inspections in Xinjiang. Bitcoin (BTC, -2.07 percent ) miners in this coal-heavy field went offline as their main energy sources were cut off, and Bitcoin’s hashrate fell by around a quarter.
“The 12.6% difficulty drop is the largest negative difficulty adjustment since 2012, excluding November 2020 (end of hydro season), March 2020 (Black Thursday) and December 2020 (end of hydro season), meaning that it’s a great time to be a miner. The drop is primarily caused by the inspections and associated power outages in Xinjiang, and although the majority of mining farms in the regions have recommenced mining, the network hashrate has not quite reached all-time high again,” Compass Mining CEO Thomas Heller told CoinDesk.
Some of these miners are back online and Bitcoin’s hashrate has recovered, but as the difficulty adjustment suggests, more miners need to come back online still before the network is at the levels it sported a few weeks ago.
Bitcoin mining centralization
“The event in Xinjiang highlights that a major portion of hashrate production still occurs in China. Seasonal and government changes have the potential to swing hashrate levels and have profound impacts on network difficulty and mining economics,” Ethan Vera, the CFO of North American mining pool Luxor, told CoinDesk.
“Bitcoin’s difficulty adjustment algorithm is working exactly as planned, compensating for slower block times with a downward adjustment. While the 2,016 block epoch is not perfect, it has been battle tested against all sorts of events and always done its job.”
Vera expects the substantial correction to put miner profitability over 40 cents per terahash, meaning roughly “90% mining margins” for miners on average.