Bitcoin (BTC) just saw its second largest drop in mining difficulty in history. On Monday, December 3rd, 2018, Bitcoin saw a -15% adjustment to its network difficulty. Bitcoin’s hashing difficulty is usually altered every 2 weeks in order to maintain a consistent 10 minute block time. It was just adjusted for the second time following the beginning of the so-called “crypto winter” starting in mid-November. Since this period, the Bitcoin difficulty for mining has been dropping at a consistent rate.
On October 31st, 2011, the Bitcoin mining difficulty dropped by 18%, the largest drop in Bitcoin’s history. This happened shortly after a 13% decrease in Bitcoin’s mining difficulty just a few days prior (Mid October 2011). The recent network difficulty adjustment came after the recent huge market drop. Following this, Bitcoin shed more than a third of its price since November 14th. Many financial experts say this market collapse is simply due to regulatory pressure. The Hash Wars that followed the Bitcoin Cash fork coupled with the current crypto market environment helped drive prices down.
This decrease in mining difficulty along with FUD and coin devaluations forced many miners to quit mining. In September 2018, Shixing Mao, the CEO of F2Pool, a China-based cryptocurrency mining pool; released some interesting data on crypto mining profitability. He states that the break-even point for mining Bitcoin (BTC) is in the $3,891 – $11,581 range depending on the make and model of the mining equipment. Bitcoin was trading at around $6,400 during the time Shixing Mao made this statement. In late November 2018, just a week after the price crash that left Bitcoin hanging at $4,300; many Chinese miners chose to start selling their mining equipment by weight instead of the price per unit.
#Bitcoin just had its second largest drop in mining difficulty in history: -15.1%. This is the current ranking:
— Fernando Ulrich (@fernandoulrich) December 3, 2018
As it stands, the Bitcoin asset itself is not directly affected by the bitcoin mining difficulty drop. This is due to the built-in difficulty adjustment feature. Bitcoin mining works by using powerful computer hardware in order to solve complex computational mathematical puzzles. Bitcoin strives to keep the block mining time at 10 minutes, keeping a regular flow of newly minted Bitcoins. The difficulty of these mining equations adjusts around every 2 weeks in order to account for any new or departing miners on the Bitcoin network.
According to Sam Doctor from Fundstrat Global Advisors, this Bitcoin mining difficulty drop pushes the Bitcoin mining break-even price even lower.
Our model suggests the cash cost of mining each BTC on the Antminer S9 is now $4500, down from $5300 in September,” he wrote. The Antminer S9 refers to specialized computer hardware used to mine for bitcoins and other digital assets.
“Depreciation expense has fallen to $1300 vs. $2000 in September, reflecting a lower rig cost as newer devices have come to market. Fully loaded breakeven is now $5700, compared with a breakeven of $7300 in September
The fact that miners are shutting down and difficulty is decreasing is a feature, not a bug, of bitcoin’s design.
— Arianna Simpson (@AriannaSimpson) December 1, 2018
While this may be a welcoming development for hardcore miners, this break-even point for Bitcoin mining is still far higher than the current market price. As a result, we will continue to see smaller players in the mining world continue to leave the fray. But even though this current decreasing trend in Bitcoin mining difficulty remains, Arianna Simpson of Autonomous Partners believes this is a feature, not a bug. She believes the Bitcoin network is simply making adjustments to cater for the recent price volatility. With a lower Bitcoin mining difficulty, it becomes much easier for new miners to join the fray and work towards their first Bitcoin rewards.
What do you think about the state of cryptocurrency mining? Will you be joining the fold to take advantage of the low bitcoin mining difficulty? Or will you be trading instead? Let us know your thoughts and opinions in the comments below!
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