As the name implies, bitcoin mining difficulty refers to the degree of difficulty involved in discovering new bitcoin blocks through mining.
The bitcoin mining process is central to the security and validity of the entire bitcoin network. At its core, mining is discovering new blocks, verifying transactions and adding them to the Bitcoin blockchain.
Miners will be the ones who verify transactions by performing a series of complex calculations and solving challenging puzzles. This is also a process which requires a tremendous amount of power/energy.
Now, this is like a lottery system where the first miner who solves the puzzle will be chosen to verify a block of transactions. In return for dedicating time and resources to performing this task, miners are rewarded with an amount of new-minted bitcoin, most commonly known as block rewards.
Why does mining difficulty matter?
While the network aims to maintain the 10-minute duration finding new blocks, the difficulty of mining bitcoin will be calibrated, by its algorithm, in accordance with the number of participants mining.
Whenever there is an influx of miners/mining rigs, the algo ramps up the difficulty of mining bitcoin. The inverse can be said, when there is a drop in miners, the protocol reduces the mining difficulty.
The slight cooling of inflation to 8.3% saw BTC price plummeting, however, bitcoin mining difficulty decided to take a different route, soaring to its all-time high, and it might not be a good thing.
Bitcoin mining difficulty sees new heights at 32.05 Trillion. This means it is the hardest to get rewarded in BTC it has ever been.
To put things into perspective, the chances of a miner solving the puzzle are 1 in 32.05 Trillion. Although this number might seem like a very small margin, with the help of new processing chips, miners are able to accomplish this feat.
A recent event in the crypto space might have contributed to the all-time highs of Bitcoin mining difficulty, the Ethereum Merge.
The Merge transits the Ethereum mainnet towards a PoS mechanism from its PoW. What this essentially means is that miners who are mining Eth will be put out of work after the Merge.
I am not a bitcoin miner myself nor do I own any Ethereum mining rigs, but this seems too much of a correlation than a coincidence.
Could this entail the shift of Ethereum miners to Bitcoin? Although a forum on Quora talks about how Bitcoin and Ethereum mining differs in technologies for mining, they could still use the same hardware, just less efficient.
[Editor’s Note: This article does not represent financial advice. Please do your own research before investing.]
Featured Image Credit: ChainDebrief