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Key Takeaways

• Bitcoin mining difficulty has surpassed 50 trillion hashes for the primary time ever
• Higher difficulty means extra competitors and fewer revenue for miners, but additionally extra safety for the Bitcoin community
• Higher mining difficulty means better power enter required to mine Bitcoin, that means better value for miners
• Mining shares have underperformed Bitcoin considerably during the last 12 months

It has by no means been so troublesome to mine Bitcoin. Literally. Bitcoin mining difficulty continues to rise incessantly, surpassing the 50 trillion hash mark for the primary time ever final week.

What is Bitcoin mining difficulty?

If it weren’t for the Bitcoin mining difficulty adjustment, blocks could be appended to the blockchain at an growing pace as extra miners joined the Bitcoin community. In such a approach, the Bitcoin mining difficulty adjusts by way of an computerized algorithm to make sure blocks are appended to the ever-growing blockchain at constant 10 minute intervals.

As extra miners be a part of the community, difficulty rises. In such a approach, blocks don’t get found faster as extra miners be a part of the community. This difficulty adjustment is thus very important to make sure the availability of Bitcoin is launched at a pre-programmed tempo, as outlined by the nameless Satoshi Nakamoto within the Bitcoin whitepaper. 

This explains how, within the early days, mining could possibly be carried out on a private laptop computer, as a result of Bitcoin was so area of interest and miners have been so few and much between – therefore the mining difficulty was far decrease. This is why you hear tales of miners who discover (or lose) stashes of Bitcoin on previous laborious drives which have been near nugatory once they have been mined. 

Today, nevertheless, Bitcoin is effectively and really within the mainstream, and mining difficulty has risen accordingly. Most mining is carried out by supercomputers, whereas there are various public firms finishing up the duty.  

What does growing mining difficulty imply?

Mining difficulty is growing as a result of extra computational energy is being put in direction of Bitcoin mining. The hash fee is what we consult with because the computational energy of the Bitcoin community. Looking on the chart, that is at an all-time excessive – which makes intuitive sense, given mining difficulty can be at an all-time excessive. 

For the Bitcoin community as a complete, this can be a good factor. Bitcoin’s hash fee is an important indicator of the safety of the community. A better hash fee means Bitcoin is extra proof against an assault by a malevolent actor. This is as a result of the upper the hash fee, the costlier and implausible it’s for an actor (or a bunch of actors) to grab management of 51% of the community, when Bitcoin could possibly be uncovered to what’s generally known as a 51% assault (cash could possibly be double spent and the veracity of the blockchain could be unsure). 

However, there are downsides to this, too. I detailed this in depth last week in a report on Bitcoin mining shares. In abstract, extra hash energy means better value for miners, because the elevated difficulty means a better quantity of power is required to energy the computer systems working to validate the transactions on the blockchain. This is why miners margins are getting lower into as extra miners be a part of the community (rising electrical energy prices additionally don’t assist). 

“The rapid decline in the Bitcoin price, down from $68,000 at the peak of the bull market in late 2021, has obviously hurt the mining industry”, says Max Coupland, director of CoinJournal. “However, that is far from the only problem facing miners. The mining difficulty hitting an all-time high means greater amounts of energy are required to mine, at a time when inflation and the Russian war have pushed the price of energy up immensely”. 

The mining business is therefore extraordinarily risky, as not solely is it delicate to the volatility of Bitcoin itself, however it additionally suffers from rising power prices. The beneath chart demonstrates how mining shares have underperformed Bitcoin in latest instances. It seems to be on the (*50*) Bitcoin Miners ETF, which tracks mining firms and was launched in February 2022. 

With Bitcoin mining difficulty hitting an all-time excessive, racing previous the 50 trillion hash mark for the primary time ever, issues received’t get any simpler for miners. However, like at all times, it’ll in the end come all the way down to the Bitcoin value. With block rewards and transaction charges recouped within the type of Bitcoin, and the whole business constructed upon this asset, mining firms will go so far as the Bitcoin value takes them.

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