Bitcoin mining difficulty has seen its biggest downward adjustment in history as it drops 28%. More than 54% of Bitcoin’s hashrate, which reflects the collective computing power of miners around the world, has gone offline since its peak in May amid China’s crackdown against the crypto industry. Miners, who are still active, have to make greater profits as most of their competitors dropped off the network.
The Bitcoin blockchain has undergone its biggest-ever drop in mining difficulty Saturday morning, as the Bitcoin algorithm has adjusted accordingly to make sure miner productivity doesn’t continue to fall steeply. It followed a strict crackdown by China on the country’s cryptocurrency industry in the last few months.
That adjustment also means it just became much easier and much more profitable to mine for Bitcoin for the miners who remain online.
Bitcoin’s difficulty is measured using an internal score that began at 1 (when Satoshi started mining at the easiest level). It is programmed to increase or decrease incrementally depending on how many miners are competing on the network. It is currently scored at 14,363,025,673,659, down from 19,932,791,027,262.
Blocks are added to the Bitcoin blockchain at a regular and predictable rate: one block every 10 minutes or so. Block time measures how long it takes to create a new block, but that pace can vary, depending on the number of miners on the network and the speed of their computers. When more miners are competing to “find” the next block, and earn the 6.125 BTC reward, then those blocks tend to be solved more quickly. However, when miners drop off the network, leaving fewer miners to compete, block times can slow down.
That’s what happened as Chinese authorities pushed to tamp down cryptocurrency trading and mining since the country has historically hosted such a large portion of the Bitcoin network’s hashpower. Local authorities in China’s Xinjiang Uygur Autonomous Region, the Inner Mongolia Autonomous Region, Qinghai province, and Sichuan province followed the top-down initiative by announcing plans to shut down some or all Bitcoin miners.
Fewer competitors and less difficulty mean that any miner with a machine plugged in is going to see a significant increase in profitability and more predictable revenue.
“All bitcoin miners share in the same economics and are mining on the same network, so miners both public and private will see the uplift in revenue,” said Kevin Zhang, former Chief Mining Officer at Greenridge Generation, the first major U.S. power plant to begin mining behind-the-meter at a large scale.
Assuming fixed power costs, Zhang estimates revenues of $29 per day for those using the latest-generation Bitmain miner, versus $22 per day before the change. Longer-term, although miner income can fluctuate with the price of the coin, Zhang also noted that mining revenues have dropped only 17% from the Bitcoin price peak in April, whereas the coin’s price has dropped about 50%.
“We are expecting a period of much higher mining profitability for Compass Mining clients,” said Whit Gibbs, CEO, and founder of Compass, a Bitcoin mining service provider. “We expect miners to be approximately 35% more profitable.”
Blockcap’s Feinstein agrees. “We are expecting a revenue and profit increase for the foreseeable future. This was an unexpected gift to the network, not just on revenues but on decentralization and sustainable energy metrics.”
Although the difficulty drop benefits all miners, those using new-generation equipment stand to benefit the most.
Feinstein tells CNBC that most of the gear in China that was turned off was old-generation equipment, which is inefficient and runs on much smaller profit margins.