Bitcoin Mining Difficulty Sees Largest Downward Adjustment of the Year

Bitcoin’s mining difficulty just fell by 12.6%, the network’s largest downward correction of the year, following mass miner outages in China’s coal-rich provinces. 

Mining difficulty is a self-correcting and internally referenced score that dictates how hard it is for miners to find the next block in Bitcoin’s blockchain. (Bitcoin’s starting difficulty was 1. Every increase from this indicates exponentially increasing difficulty.) The difficulty adjustment ensures blocks are added to the chain at a steady pace, roughly every 10 minutes on average.

Read more: How Bitcoin Mining Works

Bitcoin’s mining difficulty is currently 20.608 trillion, according to data from this journalist’s node. This is down from the 23.581 trillion difficulty Bitcoin set nearly two weeks ago, an all-time high.

The sizable drop corrects for the loss of hashrate the Bitcoin network experienced following coal mining accidents and subsequent inspections in Xinjiang. As they lost their chief source of energy, bitcoin miners in this coal-heavy region went offline and Bitcoin’s hashrate fell by roughly a quarter. 

“The 12.6% difficulty drop is the largest negative difficulty adjustment since 2012, excluding November 2020 (end of hydro season), March 2020 (Black Thursday) and December 2020 (end of hydro season), meaning that it’s a great time to be a miner. The drop is primarily caused by the inspections and associated power outages in Xinjiang. Although the majority of mining farms in the regions have recommenced mining, the network hashrate has not quite reached all-time high again,” Compass Mining CEO Thomas Heller told CoinDesk.

Some of these miners are back online and Bitcoin’s hashrate has recovered. But as the difficulty adjustment suggests, more miners need to come back online before the network is at the levels it sported a few weeks ago.

Bitcoin mining centralization

“The event in Xinjiang highlights that a major portion of hashrate production still occurs in China. Seasonal and government changes have the potential to swing hashrate levels and have profound impacts on network difficulty and mining economics,” Ethan Vera, the CFO of North American mining pool Luxor, told CoinDesk.

“Bitcoin’s difficulty adjustment algorithm is working exactly as planned, compensating for slower block times with a downward adjustment. While the 2,016 block epoch is not perfect, it has been battle tested against all sorts of events and always done its job.”

Vera expects the substantial correction to put miner profitability at over 40 cents per terahash, meaning roughly “90% mining margins” for miners on average.