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- Bitcoin mining difficulty will increase as North American mining facilities expand and Chinese miners migrate to overseas hosting sites.
- A positive adjustment will increase hashrate and network security but will mean more energy consumption and fewer profits for miners.
Bitcoin’s mining difficulty is likely to increase for the first time since the Chinese crackdown on crypto mining facilities. According to industry pundits, the swift expansion of mining facilities in North America will mostly fuel the difficulty adjustment. Additionally, the Chinese miners’ exodus plays a role as the miners now operate through overseas hosting sites.
The mining difficulty value shows how hard it is to mine a block and get rewarded in Bitcoin. As the metric increases, miners need more computing power since Bitcoin is mined using the proof-of-work algorithm. This event is what is currently ongoing as there is an increase in online mining machines. For the miner, this means fewer profit margins. For the Bitcoin network, it means added security.
For quite a while now, China was a renowned mining region, producing more than half of global Bitcoin mining. However, since May 21, Chinese local authorities have been invariably shutting down mining facilities on the central government’s orders. The result was a decline in mining difficulty and hash rate.
Positive difficulty adjustment for Bitcoin mining
As of July 17, the latest bi-weekly difficulty level posted shows the fourth downward adjustment since the crackdown. Chinese miners will take over three months to return online, says Daniel Frumkin, a researcher at Slush Pool mining firm. Getting back on their feet means having to collaborate to build new infrastructure.
“For the first time since China’s hash rate went lights out, we’re anticipating next week’s adjustment to be positive, a roughly 1.75 percent increase,” says a Saturday newsletter by Seattle-based miner Luxor.
According to Luxor CEO Nick Hansen, North American mining firms has already begun expanding operations before the Chinese crackdown. The companies include Riot and Marathon, having been motivated by Bitcoin’s historic bull run early this year. While Chinese miners faced a disastrous cessation, the rest of the miners got ‘manna from heaven.’
Marathon, for instance, entered a binding letter of intent with Compute North, a US-based hosting services provider. The Las Vegas-based company should now run about 73,000 bitcoin miners on part of the hosting firm’s data center.
The future for BTC mining operations
Nevertheless, the positive adjustment could mean a drastic upsurge in hashrate as of 2022. Hansen said;
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,”
Frumkin concurred with this, saying “…adjustments will be positive for a long time”.
In the past, central Asian and North American mining companies enjoyed wide profit margins owing to low mining difficulty. Nonetheless, new companies all over the world are emerging and competing to set up new hosting sites. The window of opportunity is slowly slimming down.
According to Hansen, the hash rate will return to the level before crackdown or exceed it in about 12 months. The timeline depends on how long mining centres take to start both new and existing mining rigs.
