The difficulty of the algorithm adjustment increased by another 7.3%! Bitcoin mining difficulty continues to "rebound"

According to the rules, Bitcoin resets the difficulty for miners every 2016 blocks, or about every 2 weeks.

As expected, in the early hours of Friday morning, the Bitcoin code automatically increased the difficulty of cracking a block by about 7.3%. Looking at the history of Bitcoin, this large increase in difficulty is not surprising or worrying.

However, it is worth noting that this is another significant increase in mining difficulty since the Chinese mining ban came into effect. At the same time, it also further confirms some speculations: some miners originally located in China are looking for new settlements elsewhere.

While Bitcoin may not be as lucrative as it was before the algorithm corrected itself, miners are still making more money now than before China began cracking down on cryptocurrencies in May.

Jason Deane, an analyst at cryptocurrency consulting firm Quantum Economics, said hash rate levels at this point are still 42.1% lower than their peak in May.

The shortage of computing power means that those who are currently connected to the Bitcoin network are making huge profits.

Back online

When China expelled all of its bitcoin miners this spring, more than half of the computing power in the bitcoin network was paralyzed—Chinese miners contribute about 54% of the computing power to the global bitcoin network.

Fewer miners and less computing power means it takes longer to verify transactions and create new Bitcoins.

So, like clockwork, the Bitcoin algorithm self-corrects for this deviation from normalcy.

In July, the Bitcoin network experienced an unprecedented 28% drop in mining difficulty. Suddenly, it became easier to create new Bitcoins, and the average block time for the global Bitcoin mining industry returned to around 10 minutes.

“The Bitcoin network has no downtime whatsoever. In fact, difficulty adjustments are the smartest part of the Bitcoin software,” said Bitcoin mining engineer Brandon Arvanaghi.

Now, with the difficulty of mining adjusted again, mining is becoming less profitable.

At the same time, the upward adjustment in mining difficulty also reveals the fact that the hash rate of the global Bitcoin mining industry has bottomed out. Since the end of June, miners and machines are quickly coming back online.

Mike Colyer, CEO of digital currency company Foundry, said: "We can see that the hash rate has dropped to the lowest point, and the hash rate will continue to rise." He further added: "The next difficulty adjustment shows that miners are expanding their production capacity and installing new machines, and there are a large number of mining machines from China that need to find new locations."

Rebuilding the Bitcoin Network

Some of the mining machines that have been put back online are old machines from China.

“Most of these people (referring to Chinese Bitcoin miners) cannot migrate to the United States due to financial constraints, and they don’t speak English and have never left the Sichuan region in their lives… All they can do is sell all their machines,” explained De La Torre, vice president of Singapore-based mining company Poolin.

According to him, “sales of these machines are very brisk all over the world.”

However, many of the ASIC mining machines that are coming online are straight off the production lines of the world's largest manufacturers, such as Bitmain and Whatsminer. These new devices are more efficient. Colyer said that they can double the computing power with the same amount of electricity. In fact, many industry insiders predict that most of the older generation of equipment will never be able to come back online, which means that the entire Bitcoin network will become more efficient and lead to greater competition among miners.

“The new machines are much more powerful than their predecessors, so it’s likely that the hash rate will continue to set new all-time highs at some point in the next 12 months,” said Whit Gibbs, CEO and founder of bitcoin mining service provider Compass.

Deane said several new machines are currently being shipped to buyers and some large companies have ordered tens of thousands of new ASIC miners that will come online in the next 12 months.

“What this means is that over the same period, mining difficulty will continue to increase steadily, and likely quite significantly,” Deane said.

At the same time, Colyer also said that from now on, the monthly mining difficulty adjustment is expected to exceed 10%, and it will take 9 to 12 months before the difficulty doubles.