The Bitcoin mining difficulty has fallen by 28% after the Chinese government closed mining farms. Miners say that the network will not fully recover from this in the near future.

Bitcoin Mining Difficulty in Free Fall

Bitcoin’s mining difficulty has just fallen by 28% – the biggest drop in the history of the network. The decline highlights the serious impact of China’s recent crackdown on its Bitcoin miners.

Mining difficulty measures the computing power needed to validate Bitcoin transactions-and consequently, how hard it is to earn new bitcoins. The network adjusts the difficulty every fortnight to reflect the degree of competition among miners. Simply put, a lower mining difficulty indicates less competition.

Today’s drop in mining difficulty follows China’s crackdown on Bitcoin miners, who were responsible for an estimated 65% of the network’s hash rate. Long before the government began shutting down miners last month, Bitcoin’s hash rate peaked at 198 EH/s (read: a lot) on April 15. After the hard penetration, the hash rate dropped to 89 EH/s.

Chinese miners are now migrating en masse or selling mining machines to foreign mining farms. But: until China’s Bitcoin miners find a new home, non-Chinese miners will benefit from the reduced difficulty, which makes it cheaper and easier to mine Bitcoin.

Ben Gagnon, Chief Mining Officer at Bitfarms in Toronto:

“All other miners who continue to operate gain a reasonable market share and thus daily block rewards.“

Peter Wall, CEO of London-based Argo Mining, points out: While miners in the West are trying to capitalize on the gap left by the Chinese crackdown, the market for mining sites is booming. Wall:

“Displaced Chinese miners are looking around the world for suitable hosting locations for their machines, and that means that in places like North America, power and space are more expensive than ever.“

The Chinese government’s crackdown and subsequent exodus of miners have helped halve the price of Bitcoin (from about $64k to $33k). The reduced hashrate also means there aren’t that many computers supporting the network – making it less secure.

However, the crackdown is good for Bitcoin in the long run. That’s what Josh Goodbody, who used to run Huobi’s mining sales in the West before becoming COO of crypto custodian Qredo, believes. According to Goodbody, the network is now less dependent on the Chinese government.

Further difficulties expected

The problems may not resolve so quickly. Bitcoin will once again adjust the difficulty in two weeks. But it is unlikely that the change will be so dramatic, according to Miner.

Gagnon:

“While we may see even more hashrate going offline in China in the coming weeks, that will be small compared to what we’ve already seen and probably offset by the first miners moving to new facilities.“

In any case, “almost the entire Chinese hashrate is already offline,” says Gagnon.

According to Wall, Chinese miners want to return to normal as soon as possible.

“For miners looking to relocate, time is crucial. The reduction in the hash rate and the subsequent collapse of the difficulty in mining will not last forever.”

But it is difficult to determine when and where Chinese mining operators will put their machines back up, since the size of China’s infrastructure simply does not exist anywhere else in the world. Gagnon:

“The world does not work at Chinese speed.“

It turns out that digital currencies are apparently still subject to real restrictions.

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Text credit: Decrypt

Last updated on July 4, 2021

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