On-chain data shows the Bitcoin network Difficulty is set for a significant jump in the upcoming adjustment. Here’s what’s behind it.
Bitcoin Difficulty To Go Up Massively In Thursday’s Adjustment
The Bitcoin “Difficulty” is a feature built into the blockchain that controls how hard miners will find it to mine a block on the network. The feature exists to limit the speed at which these chain validators can earn mining rewards.
Satoshi coded in a simple rule for the network to follow: keep the block production rate constant at 10 minutes per block. Whenever miners are producing the average block in an interval faster than 10 minutes, the blockchain raises its difficulty to bring them back to the standard rate. Similarly, them being slow forces the network to ease the metric instead.
Changes in the Difficulty occur about every two weeks in events known as adjustments. The upcoming such event happens to be tomorrow, February 19th. Below are the details related to this adjustment from CoinWarz.
Miners have been much faster than expected since the last adjustment | Source: CoinWarz
As is visible, the average block time on the Bitcoin network has stood at 8.75 minutes since the previous adjustment, meaning that miners have been significantly faster than usual.
As a result of this fast pace, the network is estimated to raise its difficulty by more than 14% on Thursday. This is an unusually big jump for the indicator, and the reason behind it lies in equally unusual circumstances.
In late January, a massive snow storm swept across the United States, causing disruptions to the nation’s infrastructure, including the electrical grid. As a response to the extreme weather event, Bitcoin miners located in the country curtailed their power to help ease pressure on the grid.
Foundry USA, the world’s largest BTC mining pool, saw a notable drop of nearly 60% in its total computing power or “Hashrate” as miners pulled back. The drop in the global Hashrate was so drastic that the Difficulty adjustment that followed led to an easing of about 11%.
However, while the Hashrate decline was dramatic, it was never going to be something permanent. As the below chart for the 7-day average Hashrate from Blockchain.com shows, the indicator has already recovered back to about the same level as on January 24th, before the snow storm took American mining machines offline.
Looks like the value of the metric has shot up in recent days | Source: Blockchain.com
The Bitcoin network had reduced its difficulty based on the speed miners were operating at due to the reduced US capacity, but as the Hashrate has bounced back, the blockchain is now forced to correct the metric in the other direction.
BTC Price
Bitcoin has continued to move sideways recently as its price is still trading around $67,600.
The trend in the price of the coin over the last five days | Source: BTCUSDT on TradingView
Featured image from Dall-E, chart from TradingView.com
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