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Can Bitcoin Mining Difficulty Adjustment Be a Kick Start for the Market?

  • Alex Dovbnya
    ⭐ Features

    Miners may have been the cause of the recent price drop, but could they also be the factor that turns things around for Bitcoin?

Can Bitcoin Mining Difficulty Adjustment Be a Kick Start for the Market?
Contents

On December 19, the next Bitcoin mining difficulty adjustment will take place, and with the way things have been going, this adjustment will make mining easier, as is the manner in which the mining algorithm has been designed.

This drop in difficulty correlates directly to the drop in hash rate, which in turn has dropped as miners have switched off due to the lowered price of the cryptocurrency. In fact, many believe it was the miners, shop shifted to take advantage of Bitcoin Cash’s fork, that sparked the drop in the first place.

However, with this latest difficulty adjustment on the card, there is a chance that miners will come flooding back and boost the market by offering a lot more functional stability to the digital currency, which is very much up in the air in relation to its future.

Already there has been a spike in the hash rate, which has been in decline since November, and this is also reflected in the price of the cryptocurrency. The difficulty drop would thus turn those who are running at a loss back into profit for mining BTC.

Was it the miners?

Many have speculated about what took Bitcoin from its rock steady range of lower $6,000, collapsing towards $3,000 in November. Its timing was suspicious as the drop in price occurred on the same day on which Bitcoin Cash had its controversial hard fork.

Some have been led to believe that the hard fork had its role to play, but it was at the core, the action of the miners that led to the decline in price. With a hard fork, there is the possibility of receiving double coins when the chain splits, so this is clearly attractive to miners.

Miners thus changed their tactic to go after Bitcoin Cash, and as such, left Bitcoin high and dry, causing the beginning of the collapse. It was a risky move as the collapse caused a spiral in the price of Bitcoin, causing many miners to become unprofitable.

The Bitcoin hash rate briefly reached an all-time high of over 60 exahash per second (EH/s) on November 1, before free-falling to recent lows of 35 EH/s, a drop that almost resulted in a halving of hash rate on the network.

Time to adjust

This drop in hash rate has now led to the Bitcoin chain having to account for it and thus lower its difficulty. Every 2016 blocks, the difficulty required to mine Bitcoin goes through an automatic adjustment. As blocks are designed to be minted once every 10 minutes, this situates the network for an adjustment every two weeks.

The goal of the adjustment is to account for changes in the network’s hash rate. If there is a major influx of new miners, blocks will be found too quickly. The inverse is true, and with decreases to hash rate since the last readjustment, blocks are being mined every 10.9 minutes on average, almost 10 percent slower than expected.

This latest drop will reduce the difficulty by a future 10 percent, having already dropped 10 percent in the past month.

Steadying the foundations

While the price of Bitcoin has been heavily influenced by speculative investors, there is no escaping the influence that miners have on the health and well-being of the chain. When there is less focus or attention given to the mining of a chain, it often reflects in the general sentiment.

However, the miners operate on a fine line of profitability, and with a 10 percent drop in difficulty comes a similar return ROI, thus making the coin more profitable at its current price. However, the added incentive is that the growth could be compounded as more mining health will likely boost the price of Bitcoin.

Cover image via u.today
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About the author

Alex Dovbnya (aka AlexMorris) is a cryptocurrency expert, trader and journalist with an extensive experience of covering everything related to the burgeoning industry — from price analysis to Blockchain disruption. Alex authored more than 1,000 stories for U.Today, CryptoComes and other fintech media outlets. He’s particularly interested in regulatory trends around the globe that are shaping the future of digital assets.

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