Bitcoin Mining Difficulty Continues to Drop

Mining Bitcoin just got a lot easier. Should we be concerned about this? Data from BTC.com shows that Bitcoin mining difficulty fell nearly 6% yesterday to 83.1 trillion hashes. The higher the mining difficulty – measured by the energy and resources miners use to keep the network secure – the harder it is to attack Bitcoin (BTC). A decrease in difficulty is therefore not a good sign. But at least it is expected in the short term, experts said.

“If there isn’t enough margin for miners to make a profit, they switch off, causing the hash rate to decrease,” Nick Hansen, CEO of the Luxor Mining Pool, told me. “Hash rate” refers to the speed at which a miner produces hashes – the process of encrypting data. This model is known as proof-of-work, an important differentiator for Bitcoin.

Last month, Bitcoin underwent a quadrennial event called the halving. The update halved miner rewards from 6.25 BTC for each block they process to 3.125 BTC. Miners – who produce new coins and keep the network running by processing new transactions – now have to work harder to stay in the game. And with smaller rewards but harder work, many miners close their doors altogether.

Nishant Sharma, founder at BlocksBridge Consulting – a research and communications strategy firm focused on the Bitcoin mining industry – said this usually happens after a halving. “After a Bitcoin halving, the drop in mining rewards leads to less efficient miners turning off their machines,” he said. “This self-adaptive feature is beneficial for leaner operations, as surviving miners receive increased rewards due to the reduced difficulty,” Sharma said.

Scott Norris, CEO of mining company Optiminer, agreed: “This is a normal occurrence after a halving event and healthy for the network and well-positioned miners,” he said. “The miners who have planned well will grow or those who are eliminated will get newer technology and find cheaper energy while everyone waits for the price to reflect the halving,” Norris added. “Regardless, the network will continue to grow.”

Bitcoin’s price also plays a role in the decline in mining difficulty: the asset reached a new all-time high of $73,737 last month, but today stands at $62,506, down 15%. If the asset were priced higher, mining the asset would be more profitable, rewards for miners would be higher, and more could stay in business. But a falling BTC price makes this more difficult, amplifying the effects of the halving.

Still, Norris says this isn’t a surprise – nor is the market stagnation. “It always happens this way,” Norris said. “Historically, it will be late in the year before we see much price appreciation for Bitcoin.”