Anika Begay
On-chain data shows that Bitcoin mining difficulty dropped by more than 4% during the latest network adjustment.
Bitcoin mining difficulty decreased in latest adjustment
The “mining difficulty” metric tracks how difficult it would be for miners to mine blocks on the Bitcoin network. The BTC blockchain automatically adjusts approximately every two weeks, where the value of this indicator changes.
To know whether this change will be positive or negative, one must first understand the purpose of difficulty. In short, difficulty exists as a measure to control the inflation of the asset.
The only way to increase the supply of BTC is to mine new blocks and receive a block subsidy in return. The block subsidy has a fixed value, so the only variable related to the growth of the cryptocurrency’s supply is the rate at which miners are hashing new blocks.
So if you want to control the inflation of the asset, this rate must be limited. Satoshi, the creator of the currency, recognized this and found the difficulty as a solution.
As miners increase their total computing power (known as hashrate), they naturally become faster at mining and thus receive block subsidies at a faster rate.
However, this is not what the BTC network wants, so it increases its difficulty as a measure to slow down miners just enough to reach the desired rate, which is one block every ten minutes.
Of course, when miners lose hashrate, the difficulty decreases, so miners can continue to process blocks at the usual rate even with less computing power.
Indeed, it would appear that the latter type of change occurred during the last adjustment, as the following chart suggests.
The data for the BTC mining difficulty over the past year | Source: Blockchain.com
During this latest downward adjustment, BTC network difficulty decreased by over 4%. The chart shows that the adjustment prior to this was a clear positive change, suggesting that the chain was responding to the fact that miners were becoming significantly faster at their task.
The 7-day average mining hashrate chart would confirm this, as its value had risen to a new all-time high (ATH) before this difficulty increased.
Looks like the value of the metric has been on the way down in recent days | Source: Blockchain.com
One consequence of this difficulty is that when new miners join the Bitcoin network, the revenue share of all miners involved decreases, since the block subsidy remains the same as before the new miners joined.
The previous big difficulty spike had naturally put pressure on miners, a factor behind the decline that hashrate has seen since its ATH. With difficulty seeing a negative adjustment now, it is possible that at least some miners are sensing improved conditions.
BTC Price
At the time of writing, Bitcoin is trading around $58,500, down more than 2% from last week.
The price of the asset appears to have been consolidating recently | Source: BTCUSD on TradingView
Featured image by Dall-E, Blockchain.com, chart by TradingView.com
