The complexity or difficulty of the Blockchain network to mine Bitcoin, has experienced the biggest drop in its history this Saturday. This is a scenario that has been expected since the massive disconnections of miners in China began. It must be remembered that that country prohibited the business within its borders.
Beijing’s punitive measures against cryptocurrencies, extended to 4 provinces that constituted 60% of the Bitcoin hashrate. These are the regions of Inner Mongolia, Yunnan, Sichuan and Xinjiang. Almost immediately, the miners complied with the order of the authorities and began the process of dismantling their farms.
The most important aspect that jumps out with the decrease in difficulty, are the advantages that active miners will enjoy. Now there will be less competition when looking for blocks from miners. Also, transaction fees will increase. Both cases translate into increased income for those miners who remain active in the midst of this process of disconnections.
Will the next adjustment to mine Bitcoin be higher or lower again?
The automatic adjustment of the difficulty of the Blockchain network to mine Bitcoin is one of the most brilliant features of the pioneer cryptocurrency. The increase or decrease of the hash power was foreseen by Satoshi Nakamoto at the time of creating Bitcoin. This consists of maintaining the average rhythm of the mining process over time.
When it is highlighted that Bitcoin mining will exist until the year 2140, this is only possible thanks to the difficulty setting tool. It should be noted, on the other hand, that the drop in the hashrate leads directly to the decrease in difficulty. In that regard, massive disconnections are expected to continue and Bitcoin’s computing power to drop even further.
At the same time, reconnections will take time, which will be a slow and painful process. All this indicates that the next adjustment of the difficulty to mine Bitcoin, proposed for approximately two weeks from now, will also be bearish.
According to the Btc.com portal, the difficulty of the network will drop from Q14 to Q10 in a 28.47% drop in addition to the 28% that occurred this Saturday. In other words, the network will suffer a depopulation that would take it to the level of difficulty it had in September 2019.
How is the adjustment process?
Adjusting the difficulty of the Blockchain network to mine Bitcoin is, as already highlighted, one of the brightest ideas in the creation of this cryptocurrency. It consists of maintaining the approximate rate of 10 minutes for each block of transactions processed.
In this way, the adjustment is made higher or lower according to the level of competition for processing blocks. In more precise words, when a large number of miners join the network, the resolution of mathematical problems is faster. This is due to the collaboration of the miners, which streamlines the process. Thus, each block is mined, no longer in 10, but, for example, in 6 minutes.
Upon detecting the change, the network automatically adjusts, increasing the difficulty of mathematical block encryption problems. By making resolution more difficult, the increasing number of miners are again able to process blocks in 10 minutes.
This process works exactly the opposite way. When a significant number of miners withdraw, the blocks instead of 10, are mined, for example, in 14 minutes. The network, in this sense, lowers the difficulty of mathematical puzzles so that the few miners can maintain the processing rate of 10 minutes per block.
In this way, the time of the adjustments can be calculated with a precise date, of the halvings or even when the last Bitcoin will be mined. It should be noted that the adjustments occur every 2,016 blocks, which in time is equivalent to approximately two weeks.
Will there be any impact on the price of BTC?
Knowing whether adjusting the difficulty of mining Bitcoin will affect the price of this cryptocurrency is little more than complicated. Generally, when it comes to bullish periods, the price is related to the rise of the hashrate and the difficulty. This is because a high price makes mining equipment more profitable, which is reconnected.
Thus, higher price equals higher hashrate and difficulty. Likewise, when the latter are high, market interest grows and demand exceeds supply, prolonging the bullish period further. From such a state of affairs, a circle is created that is broken by corrections or events such as the current punitive measures in China.
However, knowing what will happen to the price of Bitcoin amid a drop in the hashrate and difficulty is another matter. Currently, the network is going through the worst drop in its history, but the price of Bitcoin does not seem to react negatively at least for now. Beyond some lows, the price, at the time of writing, is recovering strength since the recent fall this week.
It is thought that disconnected miners in China will be forced to sell their bitcoins to cover moving expenses. This would cause an oversupply whose direct result is the fall in the price of Bitcoin. However, this has not happened so far.
If one thing is certain, it is that the orthodox manuals of classical economics do not apply to this cryptocurrency.