Bitcoin mining difficulty this week set a new all-time high of 26.64 trillion as the total hash rate of the Bitcoin network hit a record 199 TH/s. While such a turn of events is completely predictable given Bitcoin algorithms, they both happened while the price of Bitcoin is actually trending down. Is it the beginning of cryptapocalypse?
To avoid 'oversupply' or 'undersupply' of Bitcoin and consequent drop or increase of its value/purchase power, the difficulty of Bitcoin mining is automatically adjusted based on the cumulative compute performance of the Bitcoin network (the estimated number of total terahashes per second). This is done to maintain the time it takes to mine a block at approximately 10 minutes. As more nodes are added to the network, it increases the difficulty to mine a coin or decreases it when there are fewer nodes available. The difficulty is adjusted every 2,016 blocks (about two weeks).
After China banned cryptocurrency mining in late May '21, the total hash rate of the Bitcoin network dropped from 180.666 million TH/s on May 14 to 86 million TH/s by July 4. Today, total hash rate of the network sits at 198.864 million TH/s, an all-time high, according to Blockchain.com. Bitcoin mining difficulty also reached its all-time high of 26.64 trillion (up 9.32% from the previous record in mid-May) on January 21 and will continue to increase as more mining machines come online, reports CoinDesk.
As the Bitcoin network regained its performance since early July (as mining farms from China moved to Kazakhstan, Russia, and even the USA), the price of Bitcoin increased and topped at $67,582 in mid-November. But now that the Bitcoin network has more performance than ever and the mining difficulty is higher, Bitcoin costs $37,962, down 44% from its November peak.
"Given the soaring price of bitcoin last year, miners booked 'super profits,' so they tried to get more mining capacity online as fast as possible," said Jaran Mellerud, researcher at Oslo's Arcane Research, in a conversation with CoinDesk."From July 2022 to December 2022, most of the largest miners have enormous deliveries of the Antminer's newest ASIC Antminer S19 XP. These deliveries will make the difficulty soar throughout the whole 2022."
One of the things with Bitcoin is that its price now hardly depends on the amount of Bitcoins mined, which is why fluctuations between $67,000 and $38,000 happen. But as the Bitcoing mining difficulty increases while the price Bitcoin price decreases, will it be that profitable to buy and deploy new mining hardware at a rapid pace going forward?