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The price of Bitcoin has experienced great fluctuations in the past half month. In early March, the price of Bitcoin was halved to below $4,000. Last week, it showed a trend of recovery, rising to $6,300. This week, Bitcoin continued to fluctuate and recover, and the current price is $6,691, with a 24-hour high of $6,835. The Bitcoin mining mechanism has always relied on the market to automatically adjust the mining difficulty, but this week the Bitcoin mining difficulty has been reduced by 15.95%. Some professional institutions even predict that the mining difficulty will continue to decrease. So what does the reduction in Bitcoin mining difficulty mean, and what impact will the reduction in mining difficulty have on miners? Mining difficulty is a dynamic parameter that maintains the stability of the Bitcoin network. It is adjusted every two weeks. The Bitcoin network has set a rule to produce 2016 new blocks every two weeks, because maintaining this stable speed is very important for the operation of the network. In order to control the average block speed to 10 minutes per block, every 2016 blocks, the nodes in the entire network will recalculate and set a new difficulty value consistent with the entire network according to a unified algorithm, so the mining difficulty is a dynamic variable parameter.
Why is it set this way? With the increase of miners and the improvement of mining machine technology, the efficiency of Bitcoin mining, that is, the computing power of the entire network, will increase over time. However, the Bitcoin network needs to maintain a constant efficiency of producing one block in 10 minutes, so the concept of mining difficulty is introduced. The Bitcoin protocol will automatically adjust the mining difficulty of the next 2016 blocks based on the total time of the last 2016 blocks, that is, 2016*10 minutes, which is about 2 weeks.
According to this logic, we can see that the difficulty coefficient of Bitcoin mining is proportional to the computing power of the entire network. When the computing power of the entire network increases, the difficulty will also increase. When the computing power of the entire network decreases, the difficulty will also decrease. However, there is no perfect calculation formula for the specific increase and decrease ranges. On March 26, the difficulty of Bitcoin mining was reduced by 15.95% to 13.91 T (block height 622944). This reduction in mining difficulty ranks second in Bitcoin history, second only to 18.03% on October 31, 2011. It also set a new record for the reduction in mining difficulty since the birth of Asic mining machines.
What is the reason for the second largest reduction in mining difficulty in history?
1. The direct reason is the impact of Bitcoin price fluctuations. As analyzed in previous articles of Chain Tea House, Bitcoin prices have fluctuated greatly recently, with a drop of more than 40% in early March and a rise of more than 20% last week. Many miners and miners have to deal with the floating price with constant computing power, which puts them under great pressure. When the price of Bitcoin reaches a low point and cannot cover machine wear, labor costs and electricity costs, these mining machines will be forced to shut down.
The latest adjustment to Bitcoin mining difficulty follows a sharp fall in the Bitcoin market, with the price of Bitcoin falling by more than a third since November 14, 2018, according to CoinMarketCap. Financial experts blame the market crash on regulatory pressure, the Bitcoin Cash hard fork, and the poor state of global markets.
After the Bitcoin mining difficulty was announced to be reduced by 15.95% on March 26, the reduction in mining difficulty, coupled with the depreciation of cryptocurrencies, forced miners and marginal miners with low computing power to withdraw.
2. The indirect reason is that a large number of Bitcoin miners left due to the impact of the international financial market
The fundamental reason for the Bitcoin crash on March 12 was the currency crisis caused by the trend of liquidity depletion. In the face of global financial risks, investors rushed to sell all kinds of valuable assets in order to recover cash to fill the book losses and tide over the difficulties, making the virtual currency market the first to bear the brunt.
Affected by the outbreak of the novel coronavirus pneumonia overseas, the U.S. stock market has experienced severe shocks, with frequent circuit breakers in recent weeks. Russia, Saudi Arabia and the United States are also engaged in a fierce game of bargaining over crude oil prices, and the price of gold, as a safe-haven asset, has also been affected and fluctuated this month.
The shock in the global financial market has made investors and institutions feel uneasy. Not knowing when the global economic crisis will come, they sold all kinds of assets and turned to cash as a support. Bitcoin also showed its weakness in the face of the crisis of currency liquidity depletion. In addition, governments of various countries continued to strengthen the control of digital currencies in the context of the difficult financial market, causing a large number of Bitcoin miners to lose confidence in mining and sell the Bitcoin they held. The leading institutions also increased large short transactions. The number of people and organizations mining is decreasing, and the computing power of the entire network is declining, and the difficulty of Bitcoin mining is bound to decrease.
Old mining machines are still at risk, but new mining machines may bring new opportunities. Zhu Yu of Biyin said that under the current electricity price, the proportion of electricity costs of S9 is still between 80% and 100% (different models). However, most of the new models released after 2018 can indeed breathe a sigh of relief for the time being.
The difficulty of Bitcoin mining has been reduced by 15.95%, and the daily income per T of mining has increased from the previous 0.0000153 BTC to the current 0.0000187 BTC. It is expected that the mining difficulty will continue to decrease in 14 days. In the short term, the income of Bitcoin emerging mining machines and miners will increase.
According to preliminary estimates by mining professionals, when the computing power drops by 10% and the mining difficulty drops by more than 20%, the extra bitcoins mined by some s17 mining machines can offset the low price of the currency, and the machines can be turned on. When the computing power drops further by 20-30% and the mining difficulty drops by 40%, mainstream machines such as s17, m20s, and t17 can also be turned on.
If the price of the currency does not fluctuate too much, some machines will be turned on after the difficulty is lowered, which means that the difficulty will rebound to a certain extent. It has no overall impact on the mining industry, but some miners who are on the verge of shutting down will be more tired. They need to worry more about turning on the machine today and shutting it down tomorrow.
A reduction of more than 15% in mining difficulty may lead to a short-term bull market or the coming of winter. From the development history of Bitcoin, the mining difficulty has been reduced by more than 15% twice in October 2011 and December 2018. Before the change, the decline of Bitcoin reached 90% and 50% respectively, and after the change, Bitcoin ushered in a short-term bull market. It can be seen that the drastic price fluctuations of Bitcoin will inevitably lead to changes in mining difficulty, and mining difficulty is positively correlated with the efficiency of miners' income, which may also breed the next bull market.
Even though the difficulty adjustment in December 2018 brought a short bull market, it was not lasting, and the whole of 2019 can be called a cold winter. The current reduction in mining difficulty may also bring a short-term recovery in Bitcoin prices, but in the long run, the reduction in difficulty will bring more signs of a cold winter. Combined with the current turmoil in the global financial market, the price of Bitcoin itself is fluctuating. The adjustment of mining difficulty may not necessarily stabilize the next wave of small bull market. Investors should pay close attention to the Bitcoin market and choose to invest carefully. (NetEase) |
