Bitcoin’s code has been around since 2009, but roughly every two weeks the algorithm changes just a bit to make it either easier or harder to mine.
The network difficulty today became 1% tougher. While that’s not a huge jump, it’s the seventh straight increase since late July. According to Arcane Research, the last time that happened was in 2019.
Bitcoin mining difficulty adjusts in order to keep blocks processing at a rate of one every 10 minutes. In proof-of-work blockchains, such as Bitcoin, miners compete with one another for the responsibility of validating transactions so that they can unlock the freshly minted BTC created with each block. To get that chance, they race to be the first to solve a cryptographic puzzle. The more computing power they bring to the table, the faster they can solve it.
So, one can imagine that, as everyone brings more computing resources, or hashpower, to the table, that puzzle is going to be solved quite quickly. Instead of a slow drip of Bitcoin into the crypto economy, there’d be a deluge.
The difficulty adjustment solves for this. The fact that the cryptography keeps becoming a bit more challenging is reflective of the increased hashpower being brought to the table.
According to statistics from Bitcoin block explorer Blockchain.com, the hashrate—the number of calculations being made per second—for October is at its highest level since June, when it was coming down from a spring sugar high.
The hashrate over the past six months correlates fairly well with the price of Bitcoin during that span. About a month after Bitcoin hit an all-time high price of $64,804.72 (according to data from CoinGecko), the hashrate also peaked. When Bitcoin’s price plummeted, so did hashrate.
Miners, says Arcane Research, are chasing a payday: “The current high profitability of mining has steadily drawn in more hashrate.”
But mining has been profitable, in part, because of the shutdown of mining outfits in China over the summer. Miners based in the U.S. and elsewhere benefitted from decreased competition. Yet that high hashrate is returning, and high prices with it, the latter of which keeps miners happy. Arcane notes that average daily miner revenues last week were up 25% on the yearly average.
“2021 has been an excellent year for bitcoin miners,” it concludes, “and the super-profits have increased lately and don’t seem to end soon.”
