Why don’t we worry too much about a sharp drop in Bitcoin’s computing power?

Written by: Alex Thorn, Head of Enterprise Research at Galaxy Digital Translated by: Lu Jiangfei

The day before yesterday, June 27, 2021, was the slowest day for Bitcoin block generation in the past decade (since 2010), with an average block time of 23 minutes, while the average block time previously remained at around 10 minutes. Recently, provinces such as Sichuan in China have stopped Bitcoin mining, which can be said to be the most destructive action the Bitcoin network has ever faced. However, the Bitcoin network has not been defeated, but is gradually adapting to market changes and will become more and more prosperous in the future.

The table below shows the 25 days with the slowest average block time since 2010. We did not include the data from 2009 because almost no one knew about the existence of Bitcoin at that time, and because Bitcoin had just been created, there were many days with very long block times that year.

Block time is the time interval between miners discovering and adding blocks to the blockchain. Bitcoin tries to maintain the block time within a relatively stable range, that is, 1 block every 10 minutes. After every 2016 blocks, Bitcoin will adjust the mining difficulty according to the network situation, either making mining easier or harder:

• If the hashrate increases so that it takes less than 10 minutes to mine a Bitcoin block (i.e., 2016 blocks can be mined in less than 2 weeks), the Bitcoin network will then increase the difficulty of mining;

• If the hashrate drops and it takes more than 10 minutes to mine a Bitcoin block, the Bitcoin network will then reduce the mining difficulty.

As other provinces such as Sichuan, Inner Mongolia, Qinghai, Yunnan and Xinjiang have begun to stop Bitcoin mining activities, Bitcoin hashrate is expected to continue to decline. In 5-6 days, we may see a significant reduction in mining difficulty, which will restore the block time to an average level of about 10 minutes. However, before the Bitcoin mining difficulty is adjusted, the network block time will still be very slow.

Frankly speaking, the mining difficulty adjustment is one of the "most elegant" features of Bitcoin. It not only ensures that the network can absorb the impact of a short-term sharp drop in computing power, but also effectively implements Bitcoin's monetary policy. This is because the mining difficulty ensures that Bitcoin blocks must appear as planned, so the newly minted BTC will also appear as planned.

Once the difficulty of Bitcoin mining is adjusted, Bitcoin miners who remain on the network will gain more market share and, as a result, more profits. It is expected that this Friday, we will see the largest difficulty (downward) adjustment in Bitcoin history, but before that, we may have to wait longer for Bitcoin blocks.

For the Bitcoin network, according to on-chain data, the suspension of Bitcoin mining activities in Sichuan and other provinces has indeed brought great damage. However, even under such a large-scale industry impact, although the network block speed has slowed down, we have found that Bitcoin has actually shown great resilience and vitality.

Some people think that this may be a "state attack" encountered by Bitcoin, but from the current point of view, the Bitcoin network has coped very well. Looking at human history, what products can continue to operate after the "50% industry base" is dislocated? It seems that only Bitcoin has the ability to withstand such a large-scale interference.

On the other hand, many Bitcoin miners have begun packing up and moving their mining machines to other regions. It is expected that new mining bases will be spread across several neighboring countries and North America, where there is abundant low-cost energy and the local market is very interested in Bitcoin mining.

In the long run, the concentration of computing power in a single jurisdiction is not a good thing for Bitcoin. We hope to see Bitcoin mining become more and more decentralized. Only by achieving this goal can we truly take control of our destiny.