Since last summer, when China cracked down on the industry and forced mining companies to relocate to other countries, the difficulty of mining Bitcoin reached its highest point in October. Meanwhile, its lowest point since then occurred only a few days ago.
According to the most recent adjustment reported Monday by BTC.com, it is now up by 3.27%. Why are you yo-yoing? The reasons for this are not entirely evident to industry professionals.
One possible explanation is that machines are switched on and off based on spot energy prices and profitability, with more efficient ones also being deployed. But it could also be a stroke of luck, according to Daniel Frumkin, director of research at Brookings.
“My theory is that the ‘capitulation’ that appeared to happen in the last epoch (leading to the Dec. 6 adjustment) was greatly overstated and it was really just a very ‘unlucky’ period of variance,” he told The Block.
The difficulty modifications are based on the average block time for that epoch, which is the time between. Because it takes longer to mine certain blocks, the network will infer that the hashrate has declined and lower the difficulty correspondingly.
More specifically: Assume you control 10% of the overall network hashrate. This implies that you should be mining 10% of the blocks. However, because mining is probabilistic, you could be unfortunate and only mine 5%, or you could be lucky and mine 15%. Ethan Vera, COO of Luxor, a bitcoin mining software startup that manages a mining pool, stated.
In theory, the entire sector may be fortunate or unfortunate. With the same amount of overall network hashrate, it may hit 140 blocks one day and 150 blocks the next.
While it’s “quite plausible” that luck played a role in the 7.32% dip a few days ago, Vera says it’s also difficult to tell “what influence of the difficulty adjustment is coming from luck vs what is coming from actual proper network hashrate improvements.”
Frumkin stated that the real-time hashrate was above 250 EH/s for the entire month of November (unlike hashrate estimations), which leads him to conclude that the drop on December 6 was not caused by that much hashrate going offline. “It could have just been an unprecedented incident in which numerous pools all had horrible luck at the same moment.”
“It’s also true that some miners were turning off their machines,” Frumkin stated. “There is new hashrate being added by more efficient miners, and then there is hashrate being removed.”
“Whenever there is extreme volatility in the price (of bitcoin), the same might be noticed with hashrate,” Kevin Zhang, senior vice president at mining pool Foundry, said. “Recently, we saw an extremely dynamic scenario of an overwhelming volume of newer gen (better efficiency) ASIC’s being deployed mixed with huge miners capitulating with bankruptcies.”
Miners who do not have a set power contract are at the mercy of market costs, and “energy is really dictating a lot of people’s decisions,” according to Riot CEO Jason Les.
And although there is “a lot of short-term unpredictability in hashrate that’s driven by spot energy pricing,” over the next six months hashrate will likely keep climbing as corporations continue to deploy efficient machines, Marathon’s CEO Fred Thiel said.