After three straights months of drops, Bitcoin’s difficulty algorithm finally adjusted upwards. This means that it is now 10% harder to generate a block on the Bitcoin chain. To new users, this may seem like bad news – after all, there will be fewer new Bitcoin entering the pool and it will take more ‘Proof of Work’ to generate each new coin. However, this is a positive sign that miners are returning to the pool with renewed confidence.
Bitcoin’s difficulty algorithm is a function of the blockchain’s “Proof of Work” system. Miners that wish to produce Bitcoin must contribute a certain amount of computational power, or hash rate, to have a chance of completing the block and receiving a coin. When the price of Bitcoin falls below the cost in electricity and materials required to produce it, miners abandon the pool. As the pool holds fewer miners, the difficulty drops to ensure that profitability remains. A rise in difficulty, like that we’ve just seen, indicates a bolstered mining pool and a positive trend for the market as a whole.
Bitcoin’s Difficulty over Time
As Bitcoin rose from relative obscurity to the herald of a new economy, the difficulty shifted and rose over time. Where any user could once mine Bitcoin using their personal computer’s graphics card, those days are long since gone. Now, the BTC mining pool is dominated by entire factories of ASIC mining rigs designed specifically for that purpose. The sheer force of these industrial hash rate producers sent the difficulty sky rocketing. A new block is generated every 600 seconds – whether by random graphics cards, or by powerful ASIC networks.
Despite the massive downturn, Bitcoin’s difficulty continued to rise throughout the first three quarters of 2018. The prolonged period of $6,500 BTC prices taxed the network, and sparked the first difficulty adjustments downward – a trend that continued for three months. As Bitcoin’s price dropped further, large-scale mining concerns began panic selling their equipment.
Bitmain’s Mining Crisis
Crypto-enthusiasts watched the rise of Bitmain with increasing concern – the China-based mining company dominated the mining pool. Their proprietary Antminer line of ASIC systems controlled a distressing amount of the overall hash power of the Bitcoin blockchain. This meant that Bitmain possessed an unheard of level of control within the Bitcoin ecosystem. Further, they were the main seller of ASIC hardware – creating a controversy when it was discovered that they pre-installed remote kill switches in their machines.
Now, Bitmain is a mere shell of its former self. While they struggled with the low price of Bitcoin, it was their investment in the Bitcoin Cash civil war that seems to have sunk the ship. Bitmain fully backed the Bitcoin Cash ABC hard fork in their war against Bitcoin Cash SV. The war split the BCH mining pool between two separate coins, causing the price to tank for both. While the upswing in Bitcoin’s price may ultimately save the company, it’s doubtful that they will secure such a large percentage of the hash power again.
Article By: Adam Stone
