Bitcoin’s mining difficulty fell by 16% on Sunday to 21 trillion, the sharpest decrease this year. The correction suggests that Chinese miners are pulling the plug in advance of further crackdowns on mining by the government.
Bitcoin mining difficulty measures how much computer power is required to produce new Bitcoin. The network adjusts the difficulty (roughly) once a fortnight to reflect the level of competition among miners. Lower mining difficulty indicates less competition.
More than 75% of the miners that validate Bitcoin transactions are based in China. Last Friday, the government added Bitcoin mining to a list of industries that required monitoring in order to protect the economy.
Shortly after, Huobi and OKEx restricted Chinese customers from accessing certain services. A spokesperson for Huobi told Decrypt that the restrictions were a response to the government’s remarks. OKEx told Decrypt its restrictions aimed to remain compliant with regulators.
Government sources reportedly told Chinese publication Caixin that the government is worried that crypto will harm uneducated investors, and would prefer to put the electricity and computer chips to use elsewhere.
4. Beijing believes that crypto is completely bubble, and even the risk is transferred to elderly people with less investment experience
5. Regulators want to completely cancel mining and Bitcoin, but it is not feasible
— Wu Blockchain (@WuBlockchain) May 30, 2021
Inner Mongolia has already begun to crack down. The region’s autonomous government is reportedly considering adding Bitcoin miners to social credit blacklists and has proposed the revocation of telecommunications licenses for miners.
Today’s adjustment also increased the average time it takes to produce a block to 11 minutes 55 seconds—almost four minutes longer than on May 13, when block production averaged 8 minutes and 14 seconds.
In the previous adjustment on May 13, the mining difficulty hit a record high when it rose 21.53% from difficulty levels set on May 1. The flip in fortunes was felt across the market.