On-chain data indicates that the difficulty of Bitcoin mining is set to drop by about 5% in the next network adjustment, a change that miners will appreciate.
Bitcoin network block time has been slower than usual lately.
The term “mining difficulty” refers to how difficult it is for miners to mine blocks on the BTC network. The purpose of the difficulty is to ensure that the total time between adding each block to the blockchain, known as block time, remains constant at around 10 minutes.
Whenever the miner rate deviates from this value, the network adjusts its difficulty level to restore block time to standard time. These adjustments occur approximately every two weeks, with the latest adjustment scheduled to take place sometime tomorrow.
As with data from Queenwares The display shows that miners have not been able to mine at a rate of one block every 10 minutes for the past two weeks.
Looks like the Difficulty is set to drop tomorrow | Source: CoinWarz
With an average block time of 10.52 minutes, the Bitcoin blockchain is running slower than intended, so the network will reduce its difficulty by 4.91% tomorrow. With the lower difficulty, miners should find it easier to find blocks and restore the speed of the chain.
As for why miners have been slowing down recently, the answer lies in the Mining Hashrate trend, which is a measure of the total amount of computing power miners have tied to the BTC blockchain.
Here is a diagram of Blockchain.comwhich shows the past year’s data for the 7-day average for this metric.
The trend in the BTC Hashrate over the last twelve months | Source: Blockchain.com
As you can see in the chart, the 7-day average Bitcoin mining rate hit a new record earlier in the month, but since then, the index has fallen sharply.
With less computing power available to them, miners have naturally become slower at performing their tasks recently, forcing the network to reduce the difficulty. If they had instead increased their power during this period, the difficulty would have headed towards another increase.
The lower difficulty will be refreshing for miners, as block time is directly tied to their revenue. Miners earn their income through the block reward, a combination of block subsidy and transaction fees, which they receive as compensation for solving blocks.
The faster miners can go through blocks, the more revenue they can earn. Since the network tries to limit block times to around 10 minutes, there is a limit to how much miners can earn.
Even if miners doubled their computing power overnight, they couldn’t gain more than double the speed for at least a few weeks, before the Bitcoin blockchain brought them back to normal by dramatically increasing the difficulty.
This is the main reason for the difficulty, so that miners cannot keep increasing their power indefinitely to complete blocks faster. Without this feature, the cryptocurrency would easily fall prey to inflation because the block subsidy, the main component of the block reward, is the way new coins are “minted.”
Bitcoin price
At the time of writing, Bitcoin is trading at around $63,400, up 4% over the past seven days.
Looks like the price of the coin has been showing stale action recently | Source: BTCUSDT on TradingView
Featured image by Dall-E, Blockchain.com, CoinWarz.com, chart by TradingView.com