On-chain data indicates that Bitcoin mining difficulty is expected to reduce by approximately 5% in the upcoming network adjustment, a change that miners will likely welcome.
Recent Slowdown in Bitcoin Network Block Time
The term “Mining Difficulty” refers to the challenges miners face while trying to mine blocks on the BTC network. The purpose of this Difficulty is to ensure that the average time taken to add each block to the blockchain, known as block time, remains consistent at about 10 minutes.
Whenever the mining speed deviates from this standard, the network adjusts its Difficulty to restore the block time to its intended duration. These adjustments occur roughly every two weeks, with the next one scheduled to take effect tomorrow.
According to data from CoinWarz, miners have struggled to maintain a pace of one block every 10 minutes over the past few weeks.
The Difficulty is set to decrease tomorrow | Source: CoinWarz
With an average block time of 10.52 minutes, the Bitcoin blockchain has been operating slower than expected, prompting a 4.91% reduction in difficulty tomorrow. This decline should make it easier for miners to find blocks and help speed up the chain.
As for the reasons behind the recent slowdown for miners, it can be attributed to the trend in Mining Hashrate, which gauges the total computing power connected to the BTC blockchain.
Below is a chart from Blockchain.com illustrating the 7-day average of this metric over the past year.
The trend of Bitcoin Hashrate over the past year | Source: Blockchain.com
The chart shows that the 7-day average Bitcoin Mining Hashrate hit a new high earlier this month, but has since seen a significant decline.
With considerably less computing power at their disposal, miners have naturally slowed down in their operations, leading to this Difficulty reduction. Had they increased their power during this timeframe, the Difficulty would have likely risen instead.
This Difficulty drop will be a relief for miners, as block time directly affects their earnings. Miners earn income from the block reward, which is a combination of the block subsidy and transaction fees they receive for successfully mining blocks.
The quicker miners can process blocks, the more revenue they can generate. Since the network aims to maintain block time at around 10 minutes, there’s a maximum limit on miners’ earnings.
Even if miners were to double their computing power overnight, they can only increase their earnings rate for a couple of weeks before the Bitcoin blockchain adjusts the Difficulty upwards to bring them back to a regular pace.
This mechanism is the primary reason for the existence of Difficulty; it prevents miners from infinitely boosting their power to generate blocks faster, which would lead to inflation as the block subsidy—which is central to the block reward—is how new coins are created.
BTC Price
As of this writing, Bitcoin is trading around $63,400, reflecting a 4% increase over the past week.
The price of Bitcoin has exhibited some stagnation recently | Source: BTCUSDT on TradingView
Featured image from Dall-E, Blockchain.com, CoinWarz.com, chart from TradingView.com
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