Bitcoin mining difficulty dropped again by 15.95%: the drop is the second largest in history, why is this?

Bitcoin mining difficulty, as an important indicator of competition among miners, has recently dropped by 15.95%, the second time in the history of Bitcoin that the difficulty of mining has been significantly reduced. As of now, Bitcoin is the world's largest blockchain network by market value.

As the price of Bitcoin has recently experienced a sharp drop, it is difficult for miners to sell new Bitcoins at high prices, so the reduction in the difficulty of Bitcoin mining actually means that some miners have chosen to withdraw from the "mining game". The reduction in mining difficulty may be beneficial to those miners who are still "continuing the game" - because the reduction in mining difficulty means that it is easier to produce new mines, and with the reduction in the number of peer competition, individual miners can get more share from the daily mining output of Bitcoin.

At approximately 3:00 AM UTC on March 26, Bitcoin’s mining difficulty was adjusted to 13.91T, a significantly lower difficulty index than the 16.55T in the last adjustment cycle (March 9). Two weeks ago, Bitcoin suffered its worst sell-off in seven years, and has only partially rebounded since then.

Mining requires the use of powerful, energy-hungry specialized computers, and these mining companies typically pay their huge bills by selling Bitcoin or taking out loans against it.

After the second largest reduction in Bitcoin mining difficulty this time, the third largest difficulty reduction in Bitcoin history also reached 15.13%, which was recorded when the Bitcoin price plummeted in December 2018. The largest mining difficulty reduction in Bitcoin history can be traced back to October 2011.

Bitcoin's mining difficulty is set to adjust every 2016 blocks (usually taking about 14 days) in order to keep the average block production interval around 10 minutes.

If more and more miners quit within a 14-day cycle, the time it takes for the remaining miners to produce these 2016 blocks will increase due to a lack of sufficient computing power. Therefore, in order to make the mining of the next cycle of Bitcoin less difficult, the Bitcoin ecosystem must lower its mining difficulty.

Likewise, if a large number of miners come in during any 14-day period, this will shorten the average interval between block production, which means that Bitcoin will increase the difficulty of mining in the next cycle. Therefore, due to increased competition, individual miners will produce fewer Bitcoins.

To make matters worse for miners over the past 17 days, Bitcoin mining difficulty reached an all-time high on March 9 (just days before the stock price crash on March 12), leaving more than two weeks before the mining industry was able to correct itself.

According to data from mining pool f2pool, the recent Bitcoin price crash, coupled with unprecedented mining competition (as Bitcoin mining difficulty has reached an all-time high), means that more than two dozen old-style Bitcoin mining machines have been losing money every day over the past two weeks, assuming an average electricity cost of $0.05 per kilowatt-hour.

The average total computing power generated by all mining equipment on the Bitcoin network has also dropped over the past two weeks, from 118 EH/s in early March to about 99 EH/s now.

Chris Zhu, co-founder and COO of Chinese mining pool PoolIn, said on March 12 that he expects Bitcoin’s hash rate to drop by 20% to 30% in the coming weeks following the price crash, based on several hash rate drops seen by major mining pools at the time.

Compiled by: Lin Shihao

Image source: Pixabay

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