Data shows the Bitcoin mining difficulty has recently seen its fifth straight increase as the hashrate has continued to increase.
Bitcoin Mining Difficulty Has Gone Up By 3.55% In Latest Adjustment
The “mining difficulty” refers to a feature on the Bitcoin blockchain that controls how hard the miners would find it to mine on the network. For example, miners have to work more to solve the next block when its value goes up.
Now, why does this feature exist at all? The reason is that Satoshi wanted BTC’s block rewards (the rewards that miners receive as compensation for solving blocks) to be given out at a constant rate, no matter the network conditions.
The block rewards serve as the only way to mint new cryptocurrency tokens into existence. When miners increase their computing power (the “hashrate“), they naturally become faster at mining, producing blocks faster.
The miners then start receiving rewards faster, so the asset’s supply also begins growing at an accelerated rate. This can be troubling for the asset, as its value can fall prey to inflation.
Satoshi had already foreseen such an issue, so the anonymous creator had opted to keep the block rewards constant so that the coin’s inflation remained controlled.
Whenever the miners increase their hashrate, the blockchain ups the difficulty in the next scheduled adjustment (roughly every two weeks). With the higher difficulty, the miners are slowed towards the standard rate.
Now, here is a chart that shows how the Bitcoin mining difficulty has changed over the past year:
The value of the metric has been going up in recent days | Source: CoinWarz
The Bitcoin mining difficulty has increased by about 3.55% in its latest difficulty adjustment, setting a new all-time high. As is apparent from the chart, this rise in the metric is the fifth straight that the network has observed.
There was only one other instance this year with five consecutive adjustments. So, another one now would mean the record would be broken for 2023.
The reason that the difficulty has been rising so relentlessly recently is that the mining hashrate has also been showing some unstoppable growth, as it has continued to set new all-time highs of its own. The chart below displays the trend in the 7-day average value of this Bitcoin indicator over the past year.
Looks like the metric has been growing sharply recently | Source: Blockchain.com
New miners have been coming to the network, and old ones have been expanding recently, possibly in anticipation of a bull market for the cryptocurrency.
Since the block rewards remain nearly fixed, the only variable in the miner revenues is the asset’s price. Rallies thus mean higher incomes for these chain validators, so they are incentivized to expand in preparation for them.
At the time of writing, Bitcoin is trading at around $36,800, up 5% in the past week.
BTC has registered a sharp uptrend in the past month | Source: BTCUSD on TradingView
Featured image from Brian Wangenheim on Unsplash.com, charts from TradingView.com, Blockchain.com, CoinWarz.com