Jul 122015

Bitcoin Difficulty

Bitcoin difficulty has topped 50,000,000,000 for the first time ever, reaching an all time high of 51,076,366,303, as the price of Bitcoin continues to rise on the Eurozone crisis in Greece and the stock market crash in China. The Bitcoin network from a mining perspective has still remained quite healthy even during an extended price slump, as the technology improves and bigger players with lower operational costs with economies of scale have entered the mining market.

The recent increase in difficulty on July 11, 2015 comes after a slight decline in Bitcoin difficulty during the last update on June 28, 2015, when the network difficulty dropped by 0.58%. 2015 has seen many gyrations in the mining difficulty, with several drops and rises so far, but the overall difficulty still remains higher than what it was at the beginning of the year, with a Year-To-Date increase of 25.7%.

Bitcoin mining is at an interesting crossroads for the next few months, as miners will need to prepare for the next mining rewards halving event sometime next year. This will be a major event compared to the last time around when mining was still more of a hobbyist endeavor. Today, mining is being done by very well capitalized companies worth hundreds of millions of dollars. In fact, just last week, BitFury, a Bitcoin mining company, raised another $20 million.

The price of Bitcoin also affects Bitcoin mining and hashrate increases/decreases, since if the price of Bitcoin rises sharply compared to network difficulty, then older hardware can once again become profitable to operate, and miners will be quick to do so. This will cause the next difficulty to increase, continuing the cycle. However, hashrate adjustments occur only once ever 2016 blocks, so there is a lot of time for miners to bring their equipment online before they push the hashrate up.

Bitcoin’s price has been steadily rising over the last month over debt concerns in the Eurozone, especially with a potential ‘Grexit’ scenario in Greece, that could potentially cause bank-runs in rest of Europe if handled improperly by the European governments. In addition, China’s stock market has been rapidly falling in the last couple of weeks, prompting the government to take steps to try and bolster confidence in the market. Even the mainstream media has run several articles touting Bitcoin as a safe-haven asset during economically uncertain times.


Jun 142015

Bitcoin Mining Difficulty

The Bitcoin network’s hash rate has topped 350 PH/s, as the latest difficulty increase brings the Bitcoin difficulty to just shy of 50,000,000,000. The latest difficulty increase comes after a drop in difficulty the last time it was adjusted on May 31, 2015, when the network difficulty dropped by 2.5%

The latest increase also marks the 8th time Bitcoin difficulty change has flipped signs this year, in a sign of maturing mining market. Even though the overall difficulty today is higher than what it was at the beginning of the year, the increase is much lower than previous years, and the difficulty is no longer on a steep exponential curve like it was since the introduction of ASICs in the mining space.

As the price of Bitcoin stagnates, hovering around $230 for the last few months, the profits in the Bitcoin mining space are becoming harder to come by. One expected side-effect of this is the consolidation of the mining market with the strong players surviving and the weak ones folding. With the current price trend, the hobbyist miner is all but shut out of the race to finding Bitcoin blocks.

The long-term health of the Bitcoin mining space is essential to monitor to ensure the health of the Bitcoin network. This year has been unusual in terms of difficulty adjustments, as there have been constant fluctuations in difficulty, with several adjustments to the downside and several to the upside. This contrasts with a period of steady increase in Bitcoin difficulty, first terminated by a difficulty decrease on December 2nd 2014.

The major event on the Bitcoin miners’ mind is the block reward halving, expected to take place in another 12 months or so, based on the current block generation times. The current block rewards of 25 Bitcoin every (approximately) 10 minutes is scheduled to halve to 12.5 Bitcoins per block. The event will have significant impact on mining companies and related businesses, and the effect this will have on the Bitcoin network and price remain to be seen. The difficulty halving will mean halving of current inflation, which will mean a lower downward pressure on the Bitcoin prices.

Photo Credit: Flickr