Average Bitcoin hash rate falls
The Bitcoin hash rate has been clocking several all-time highs this year, even though price action didn’t reflect the growth in the network.
However, the latest difficulty adjustment recorded the first fall in Bitcoin mining difficulty since November 2021. After six successive positive difficulty adjustments, the latest Bitcoin mining difficulty corrected by 1.49%. Thus, Bitcoin mining became more energy-intensive every time as miners had to invest more computing power. The average hash rate over the past two weeks fell to 197.19 exahashes per second and the average block time increased slightly to ten minutes and nine seconds.
How the difficulty adjustment works
The Bitcoin network automatically adjusts the difficulty for newly mined blocks every 2,016 blocks, approximately every two weeks. To quote Satoshi Nakamoto from the Bitcoin whitepaper:
“The proof-of-work difficulty is determined by a moving average targeting an average number of blocks per hour. If they’re generated too fast, the difficulty increases.”
That is the reason why the latest increase in block time to ten minutes and nine seconds resulted in a slight decrease in mining difficulty.
Where the Bitcoin hash rate will go from here
Most analysts still expect the Bitcoin hash rate to do exceptionally well in 2022. In fact, some even foresee the hash rate reduction to remain the only one in 2022, as more Bitcoin mining farms come online almost every week. Compared to the last few reductions, the current correction is also a drop in the ocean.
When China banned Bitcoin mining, the hash rate collapsed, and with it, the price of Bitcoin. Although countries like Kazakhstan, the United States and Canada eventually made up the difference, it took the network a few months to readjust. However, the recent correction will most likely not result in such a prolonged slump. Increasingly, countries become aware of the benefits Bitcoin mining can have for their economy.
For example, Laos expects nine-figure profits from Bitcoin mining. Australia has been making a serious push into mining, too. Moreover, Intel will release a new chip that should make Bitcoin mining even more efficient and lucrative.
Although particularly European countries like Norway have been skeptical of Bitcoin mining, most indicators point towards the mining industry growing even more, resulting in better fundamentals for Bitcoin and thus higher prices. As more miners enter the market, the network grows more secure and is effectively backed up by more computing power. This can positively affect prices, as higher prices often follow higher hash rates and vice versa.
Finally, Bitcoin mining is becoming more decentralised by the day, which could become an important narrative play for Bitcoin bulls in the face of global economic warfare and sanctions regimes. At this point, even nation-states look likely to incentivise Bitcoin mining for their political gains.
Really not the worst time to be a Bitcoin miner.
