Chinese Miners Are Back In Action.What Implications Does This Have On Bitcoin Mining Difficulty? – CVBJ - Central Valley Business Journal

Bitcoin is undoubtedly an asset that offers many advantages over fiat money, such as the decentralization of its production. However, it is no secret to anyone that there are regions of the world where Bitcoin mining is especially developed, such as China. A few weeks ago this was slowed down by Chinese regulations, but now things seem to have changed. The main consequence is the increased difficulty of mining BTC on the network. To continue; the details.

The difficulty of the Bitcoin network to mine BTC has increased. The main reason is that the network saw a 13% increase, as miners continue to relocate machines outside of China. This is equivalent to the second largest increase of the year. Much of the mining capacity (usually in the form of server farms) moved to North America. Meanwhile, another part has gone to other countries such as Russia and Kazakhstan.

Mining Difficulty is a self-reference score that indicates how difficult it is for Bitcoin miners to find the next block on the blockchain. Self-referencing here means an internally measured unit that started with a value of “1” and has been growing exponentially since the inception of Bitcoin.

The Context: Has Bitcoin’s Mining Difficulty Increased That Much?

Compared to last month, when mining difficulty was 13.7T, it is now 17.6T. As we mentioned earlier, this is a 13% increase in difficulty level and the third consecutive positive adjustment.

The last two were 7.3% and 6%, respectively. These came after Bitcoin’s hashrate surged 28% over the last month, going from 97 exahashes (EH) to 126 EH.

Bitcoin’s hashrate has now recovered roughly 85% from its lowest point after China’s ban, demonstrating the excessive volatility created by the crackdown. In addition to the relocation of Chinese miners, the increase in the hash rate also comes from large North American miners connecting machines that were ordered earlier this year and recently delivered.

Here it is worth remembering that the difficulty is adjusted approximately every two weeks (or every 2016 blocks). The network increases or decreases it depending on how many miners compete on the network. If more hashrate is plugged in during one of these two-week periods (that is, if more miners are churning out more calculations to find blocks than before), then the difficulty will adjust upward. On the other hand, if the hashrate is disconnected and the competition is reduced, the difficulty decreases.

Additional comments

Any adjustment greater than 10% is considered substantial in the mining industry, and this will surely reduce mining profits at a time when they were slowly moving towards annual highs. The annual high, set in April when Bitcoin reached its all-time high, was $ 0.415 per TH.

Given the reduced competition, mining was highly profitable for active miners following China’s Bitcoin mining ban. This was especially true for those located in the United States. Connected miners were making massive profits, as evidenced by the fact that many publicly traded mining companies experienced their best Q2s this year.

Conclusions

Given the complex economics of mining and the fact that most of these stocks continue to trade more as a proxy for Bitcoin than based on their finances, it is fair to expect that we will not see a material change in their prices based on this adjustment.

However, that could change if there are traditional and more readily available proxies in the United States, such as ETFs. Also, something that we cannot deny is that although China extensively regulated Bitcoin mining in the country, it could not prevent miners from seeking to develop their activity elsewhere.