Bitcoin’s mining difficulty, a metric indicating the effort required to solve the complex cryptographic puzzle to mine blocks and validate transactions, recorded its fourth straight drop over the weekend.
On Sunday, difficulty fell by 4.8% at block 691,488, having declined by a record 28% on July 3, according to data tracked by BTC.com. The difficulty rate now stands at an 18-month low of 13.67 trillion. That’s down 45% from the mid-May peak of 25.05 trillion.
According to The Block, the network last recorded four consecutive declines in difficulty in 2011.
The bitcoin mining difficulty undergoes automatic adjustment every 2,016 blocks, or roughly every two weeks, to maintain a target block time of 10 minutes. The reward for mining blocks and approving transactions is currently 6.25 BTC.
The time taken to mine new blocks rises when there is a drop in the amount of computing power applied to the blockchain. At that point, the programmed code kicks pushes the difficulty lower to attract more miners and restore the average block time to 10 minutes.
“Since May, the blockchain has been running slowly. Earlier this month, the average block time reached 1,000 seconds, when they ought to average around 600 seconds.” Charlie Morris, chief investment officer at ByteTree Asset Management, said.
“To rectify that, the blockchain needed to speed up and make mining easier. The last four adjustments have been downward, and it now looks like the blockchain is back to normal,” Morris said.
The self-adjusting mechanism makes bitcoin mining somewhat analogous to perfect competition, a hypothetical market structure where forces of demand and supply interact freely and firms’ decisions are predictable.
The difficulty rate peaked at over 25 trillion in the second half of May and has been falling ever since amid China’s crackdown on cryptocurrency mining. The mean hashrate peaked along with the price in mid-April and hit a two-year low of 61.22 exahashes per second (EH/s) in late June. Since then, it has recovered slightly to 96 EH/s, according to Glassnode data.
The dramatic decline in both the hashrate and difficulty could be a short-term phenomenon, as there is evidence that China-based miners shifting to the U.S. and Kazakhstan could soon become operational.
“This is a one-off event, meaning most of this mining power will return, and before you know it, MORE than 900 coins per day will be mined since the hash rate will hit the network after the difficulty of each block decreases,” Ben Lilly, a crypto economist at Jarvis Labs, noted in a Substack post published last month.
The drop in the mining difficulty has not had any bearish effect on the cryptocurrency’s price, leaving it directionless in existing ranges. Social media chatter shows some traders are worried about a deeper drop as prices ended Sunday (UTC) below $34,000, marking the lowest weekly close of the year. At press time, bitcoin is changing hands near $31,300.
Also read: Bitcoin’s ‘Puell Multiple’ Flashes Misleading Bullish Signal as China Bans Mining