The Bitcoin hashrate has taken a distinct downward turn of late, causing some furrowed brows in the mining community.
The network hashrate now sits at a 30-day moving average of 807.26 million terahashes per second (TH/s), having dropped a not-so-subtle 19.1 percent from its high of 997.4 million TH/s. While this slide may look alarming if one squints and only considers shorter timeframes, in the much broader and longer context, there is little to no reason for panic. Mining is hard. And if it gets too hard—if the network hashrate falls too far and too fast—it could also become way too unprofitable to keep mining rigs plugged in and turned on.
Miners Shutting Down Machines Amid Declining Profitability?
The reduction in the hashrate of Bitcoin has caused some raised eyebrows, especially given the size of the drop. The current dip is like events in the past, such as the China mining ban in May 2021, which caused a big exodus of mining power, or the more recent drop we saw in April 2024. In these instances, miners were either shut down or had to move elsewhere because conditions were no longer favorable, thanks to things like government crackdowns or just soaring operational costs.
At present, the drop in hashrate seems most likely attributable to miners powering off rigs, possibly because the mining business has become less favorable lately. Speculation is mounting that soaring electricity prices, plummeting mining rewards, or some combination of both might be responsible for the hashrate’s recent downturn. Yet, in even this little bit of rumor, there is a kernel of truth. When margins get squeezed, it becomes necessary for some operations to re-evaluate just what size, or even if, a bitcoin mining operation ought to be.
The drop in hashrate is particularly significant because Bitcoin’s mining is becoming more difficult and competitive all the time, which makes it energy-intensive. In fact, Bitcoin’s mining difficulty is now hitting new all-time highs, which means that the machines doing the work to create new Bitcoins need to be more efficient than ever to pull in a profit. If they aren’t, those underperforming machines might be turned off until conditions improve. So one possible reason for the hashrate drop could be a signal that some not-so-efficient mining operations are being shut down.
Difficulty Reaches All-Time Highs, But Adjustments Will Take Time
Hashrate may have dropped recently, but Bitcoin’s mining difficulty is still hitting new all-time highs. Mining difficulty is something Bitcoin users probably don’t think much about, but it impacts the network daily. The rate at which Bitcoin is earned, the stability of the system, and the security of all transactions advance along the “difficulty plane.” And on that plane, the only way is up.
Bitcoin’s mining difficulty has reached an all-time high of 64.48 trillion, an increase of almost 8 percent from the previous all-time high three weeks ago. Our calculations show that this number translates to a first-quarter 2023 price of at least $66,500 per BTC, based on the 100 BTC reward for successfully mining a block.
Nonetheless, mining difficulty and hashrate are closely connected. When hashrate drops because miners are shutting down their rigs, block production also drops, which leads to a lowering adjustment in the difficulty level. This adjustment process takes about two weeks, or 2,016 blocks, to run its course. And as the difficulty level moves downward, mining profitability for the remaining miners moves upward, since mining profitability and mining difficulty have an inverse relationship.
This dynamic creates a delay in the lowering of Bitcoin’s network difficulty that occurs in response to a lowered hashrate. The network will take some time to adjust to this new condition. As a result, it’s possible that Bitcoin mining will become easier and more profitable for those who remain active in the mining ecosystem. However, this won’t happen overnight.
No Immediate Cause for Alarm
Although the hashrate decrease is certainly noteworthy, it is too soon to sound the alarm. In the past, Bitcoin has consistently demonstrated resilience in recovering from setbacks in mining associated with external problems like government bans or internal network adjustments. Numerous past challenges have tested the network. Each time, it has come through to show that it has weathered the storm and appears stronger for it. Ongoing adjustments to the mining difficulty are natural mechanisms to maintain the stability and security of the Bitcoin blockchain.
For the moment, it’s critical to note that hashrate variations are typical and often transient. Mining operations adjust all the time, aligned with various factors like power pricing, equipment effectiveness, and network difficulty. The current hashrate decrease serves primarily as a lower timeframe signal, and we’re likely to see a stabilization soon, with a rebound in not just overall security but also price, as the adjustment in network difficulty takes place over the next several weeks. Miners who hang on to their rigs will be in a much better situation—potentially on the verge of a resurgence—once the network difficulty recedes.
The Bigger Picture: Bitcoin’s Resilience
Even though it’s recent decrease in hashrate is certainly worth watching, one event in Bitcoin’s long-term resilience is its network’s adaptability to miner behavior changes and to external influences like governmental intervention or market ups and downs. This adaptability is one of the main reasons Bitcoin has remained, for over a decade now, the most secure and decentralized blockchain.
The security model of Bitcoin depends on a decentralized collection of miners, and even if some miners leave the market, the network will keep on functioning as intended. The capacity to adjust difficulty guarantees that the block production rate remains constant, and the integrity of the network, overall, is unimpaired.
The important thing for investors and miners to remember is that the Bitcoin network is resilient. While short-term hashrate and difficulty fluctuations can create some uncertainty, they also show the network’s ability to adjust and remain stable in the face of change. For miners, the drop in hashrate might be a good time to reassess the situation and strategize. But for investors, the more pressing point is that the long-term value proposition of Bitcoin itself remains untouched, even with the mining sector taking some short-term hits.
Conclusion
The recent decline in the hashrate of Bitcoin is significant but does not indicate any immediate danger for the network. The decrease seems to stem from miners powering down machines due to the rising difficulty and falling profits of mining. However, Bitcoin’s difficulty adjustment system is designed to keep the network stable, even as the number of machines working to secure it declines. And while the fluctuation in hashrate might be seen as part of some uncertain short-term outlook, the long-term trend is still toward resilience and adaptation, with the network evolving in response to the hashrate coming down.
Disclosure: This is not trading or investment advice. Always do your research before buying any cryptocurrency or investing in any services.
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