Bitcoin mining difficulty to rise in 2022 as Chinese miners come back online
Bitcoin mining difficulty will rise due to the expansion of mining facilities by North American firms as well as the return of Chinese crypto miners via the use of overseas hosting sites.
Wed, 28 Jul 2021, 08:53 am UTC
With the disruption of China’s crypto mining industry due to government crackdown, the global hash rate has significantly fallen since then. With fewer competitors in the field, it mining Bitcoin became a lot easier and more profitable for the remaining players such as mining firms located in North America.
However, the good days might not last for long. Bitcoin mining difficulty is expected to rise next year for the first time China’s crypto crackdown.
There are two factors at play that could bring about the anticipated rise in BTC mining difficulty next year. These are the expansion of mining facilities by North American firms as well as the return of Chinese crypto miners via the use of overseas hosting sites, according to Coindesk.
Mining difficulty is a metric that describes how difficult it is to mine a block and get the crypto reward. A higher mining difficulty means that miners will need more computing power, reducing their profit margins.
China has long been known as the world leader in crypto mining accounting for between 65% and 75% of total Bitcoin mining globally, according to CNBC. With the government crackdown shutting down operations in the country, more than 50 percent of the hashrate has dropped off-network from May’s peak.
“For the first time in the bitcoin network’s history, we have a complete shutdown of mining in a targeted geographic region that affected more than 50% of the network,” Blockcap and Core Scientific founder Darin Feinstein said.
However, fewer miners also meant that fewer blocks are solved each day. While it usually takes 10 minutes to mine a block, it has slowed down to 14-19 minutes since China’s crackdown.
The bitcoin algorithm is programmed to be responsive to increases or decreases in mining machines. It has a bi-weekly resetting that adjusts the mining difficulty level. On July 3, the bitcoin code recalibrated the network making it 28 percent less difficult to mine, which restored block times to the 10-minute window.
While the mining level was again adjusted lower in the succeeding on July 17, experts believe that the difficulty could be raised higher in the next adjustment. “For the first time since China’s hashrate went lights out, we’re anticipating next week’s adjustment to be positive, a roughly 1.75% increase,” said Seattle-based mining Luxor in a newsletter on Saturday.
Many believe that the lowest difficulty level has been reached and the climb back up is about to start. “I think we have reached that minimum low difficulty point and now we are going to start to grow unless there are other big government shakeups or changing bitcoin price,” Luxor CEO Nick Hansen said.
Most of the miners that displaced by the crackdown are now starting to come back online. “I am personally expecting a positive difficulty adjustment next month because the displaced miners (from China) have since found new homes and they aren’t coming offline anytime soon,” said Azam Roslan, senior sales associate at the New York-based mining firm Wattum.
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