Speculations are rife that the recent crackdown on Bitcoin miners’ activities in China made the top cryptocurrency’s network record the largest fall of its difficulty level by ~28% at block 689,471.
The reported fall in the Bitcoin mining difficulty on Saturday July 3 is its largest downward adjustment in history to make a new record, according to crypto analytics firm, GlassNode. It is preceded by the China Bitcoin mining ban on related activities leading many Chinese miners to stop their operations.
Significance of Bitcoin difficulty
As at July 3, Bitcoin difficulty – the relative measure of how difficult it is to mine Bitcoin – was at a level of 15.63 down from 19.93 as at Friday.
Bitcoin mining difficulty indicates how difficult it is to add a new block of transactions in the blockchain. It is adjusted every 2016 blocks so that the average time between each block remains at 10 minutes.
Should there be lots of miners on the network when the difficulty level is increased, it makes mining harder while it decreases to make it easier. Saturday’s difficulty level fall slowed Bitcoin’s block confirmation times to an average of 14 to 16 minutes.
We just witnessed the biggest difficulty drop in bitcoin history: -27.94 %
Current hashrate at 85.74 Exahashes.
— Alejandro De La Torre (@bitentrepreneur) July 3, 2021
Considering that most miners do not sell their coins when they are below their break even point, miners usually have less incentive to sell their coins to cover their mining cost.
However, the current decreasing mining difficulty has been considered positive due to the drop in hash rate. The decline in difficulty to a point not seen in 11 years led to a corresponding drop in transaction fees while Bitcoin price saw a $1,000 surge.
Transaction fees dropped to $6 as against $10 the previous day as transactions are expected to pick up, says Charlie Morris, founder of ByteTree.
Nice #bitcoin price move as the downward difficulty adjustment passes as expected this monrning. Fees already $6 over the past hour compared to $10 yesterday. Hopefully transactions can now start to pick up. They need to. pic.twitter.com/n1iuwP5FXM
— Charlie Morris (@AtlasPulse) July 3, 2021
Difficulty drop favours miners for now
In addition to making mining and processing Bitcoin transactions more attractive, the timing of the drop in the difficulty level is also expected to incentivize miners – including those leaving China – who are beginning to set up shop in other parts of the world like Kazakhstan and the US.
While its overall impact on the crypto industry is still being looked into, miners who remain operational at this point are expected to become more profitable over the coming weeks.
The difficulty drop means their mining reward will go up by 38.77%, according to SBI Crypto Pool CEO, Carson Smith, noting that mining rewards for each block has increased from $0.234/TH/day to $0.325/TH/day.
Smith cited that if the current hashrate of about 88EH holds, the next difficulty level (expected around July 24) will see a drop of ~14.8% to 12.238T while mining rewards go up 17% to around $0.37/TH/day.
“Miners running an Antminer S19J Pro or Whatsminer M30S+ saw an increase in revenue today from $23.4/day to $32.5/day per miner with no change in Bitcoin price,” he states. “Later in July, the same miner (will) see $37.6/day if BTC price doesn’t change.”
It could be an opportunity for Chinese miners a part of the estimated over $1.11 bln – or a liquidation of approximately 32,750 BTC (at the rate of $34,000) – they are expected to incur to complete the shutdown of their operations. The estimate includes the decommissioning of about two million servers in China according to Bob Burnett, the CEO of Barefoot Mining.