Observation | More than 2 million mining machines shut down, is a Bitcoin mining disaster coming?

The sharp drop in Bitcoin prices on March 12-13 is still reflected in Bitcoin computing power.

According to Bitinfocharts data, the Bitcoin network computing power has dropped below 100EH/s. As of press time, the total computing power of the Bitcoin network is 96.6EH/s, which has dropped by 27% compared to the historical high of 133EH/s on March 5, 2020. If calculated based on the computing power of 13T per unit, 2.8 million Antminer S9 miners have been shut down recently.

Bitcoin computing power change chart source: Bitinfocharts

According to F2Pool data, under the current coin price and difficulty, based on an electricity fee of 0.38 yuan per kilowatt-hour, once mainstream mining machines such as Ant S9, Shenma M3, and Ant T9+ have all been shut down. The electricity costs of Shenma M21s, Xindong T3+, and Ant T17 all account for more than 90%, and are already on the verge of shutdown.

Source of mainstream mining machine coin prices: F2Pool

It seems that the mining industry is experiencing a mining accident. The cryptocurrency community has also been worried about Bitcoin mining accidents, but what exactly is a Bitcoin mining accident is actually far from clear.

Let’s start with basic concepts such as Bitcoin hashrate and difficulty adjustment.

Bitcoin Hashrate and Difficulty Adjustment

Hash rate, as the name implies, can be simply understood as computing power. For Bitcoin's SHA256 algorithm, "hash rate" refers to how many hash collision calculations a mining machine can perform per second, with the unit being hash/s. When we say that a mining machine has a hash rate of about 13T, it actually means that this mining machine can perform 13 times 10 to the 14th power hash collisions per second.

A blockchain block is a data structure that mainly consists of a block header and a transaction list. The following figure is a schematic diagram of the Bitcoin blockchain.

There are four steps in Bitcoin mining: verifying and filtering transactions, calculating Merkle root, calculating block headers, and exhaustively enumerating nonce from 0-2^32. Miners calculate the hash value of the block header information to see if it is less than the current target value. If the hash value is not less than the target value, the miner will modify the nonce (usually add 1) and try to exhaustively enumerate the nonce again. If the result is less than the difficulty target specified in the block header, the mining is successful and the block reward is obtained.

The Bitcoin system stipulates that the Bitcoin network will adjust the difficulty every 2016 blocks. This ensures that no matter how large or small the computing power is, a new block is generated every 10 minutes on average. In other words, we say that the difficulty is adjusted every 14 days (20160 minutes).

When adjusting the difficulty, Bitcoin will compare whether the actual generation time of the previous 2016 blocks is greater than 20160 minutes (that is, the expectation of one block every 10 minutes). If the average generation time of the previous 2016 blocks is less than 10 minutes, the network will increase the difficulty, otherwise, it will reduce the difficulty.

Calculation formula: New target value (Target) = old target value * (20160 minutes/actual block time of the first 2016 blocks)

At the same time, in order to prevent the difficulty from changing too quickly, the adjustment range of each cycle must be less than a factor, and this factor value is 4. The new difficulty range is between 25% and 400% of the old difficulty. If the adjustment range is greater than 4, it will be adjusted by 4 times. That is, if the time is less than 5040 minutes, it will be calculated as 5040 minutes; if the time is more than 80640 minutes, it will be calculated as 80640 minutes.

That is to say, if within a difficulty cycle, if miners shut down and the computing power decreases, the block time of 2016 blocks in this cycle will be greater than 20160 minutes, which will cause the adjustment cycle to be greater than 14 days.

So after the Bitcoin crash on March 12, Pan Zhibiao of Biyin Mining Pool said, "If the computing power drops by 30%, it will take 16 days to adjust, and miners must generate at least half a month's cash flow."

Of course, finding a result that meets the requirements through hash operations depends not only on the size of the network's computing power, but also on luck. On March 12, Bitcoin took more than an hour to produce a block. Many netizens believed that this was caused by a sharp drop in the price of the currency, and miners panicked and shut down, resulting in an instant drop in computing power. However, the next few blocks took only a few minutes to produce.

However, if the computing power decreases, the block time of Bitcoin will indeed be greater than 10 minutes. As of press time, btc.com data shows that the block time of Bitcoin blocks is greater than 10 minutes.

The latest Bitcoin block time is greater than 10 minutes. Source: btc.com

What is a mining accident?

The current Bitcoin computing power has dropped by 27% compared to March 5. Has a mining accident occurred?

Wen Hao, the founder of Bitai Wallet, told Golden Finance that the so-called mining disaster is that a large number of old versions of high-energy-consuming mining machines have to be shut down because the cost is greater than the electricity price, resulting in a significant drop in computing power. People call it a mining disaster. Mining disasters caused by price plunges are a normal economic phenomenon. Miners have to shut down their machines when they suffer losses.

Zhu Yu, co-founder of Biyin, said that mining accidents must be catastrophic shutdowns. If a mining machine has been mining for several years and has recovered its investment several times, is it still a disaster if it shuts down? Not at all. A mining accident is when new mining machines with low electricity costs are forced to shut down on a large scale. The mining farms with the highest electricity costs have no advantages, so it is not a big deal for some of these mining farms to shut down.

Of course, this is also a redistribution of computing power among miners. If the same amount of bitcoins is produced, the old mining machines will shut down and the new mining machines will mine more bitcoins. However, in terms of currency, the increase and decrease of the net income of the new mining machines is more complicated and also related to the currency price and electricity costs.

If the price of the currency remains unchanged after the halving, it is indeed possible that more mining machines will be shut down. The specific impact depends on the situation, such as how much computing power of old mining machines is shut down, what proportion of your new computing power accounts for the total computing power of the network, electricity costs, etc.

Will it affect the security of the Bitcoin network?

Wen Hao told Golden Finance that the mining accident itself will not affect the security of the Bitcoin network. The rapid decline in computing power will temporarily affect the block production speed during a difficulty cycle, but the Bitcoin network will eventually stabilize to a more reasonable state.

According to the above description of Bitcoin computing power and difficulty adjustment, we can know that the Bitcoin network will automatically adjust the network computing power status to reach a new balance. If miners shut down the computing power of mining machines on a large scale, it will mainly affect the miners' income, while the Bitcoin network will continue to operate.

We can imagine it more exaggeratedly. Even if the computing power of the Bitcoin network drops by half now, the possible impact is that the duration of this difficulty cycle will be much longer than 14 days. However, the difficulty will be lowered next time, and the block time of Bitcoin will be accelerated, but it will still be 10 minutes on average.