The difficulty of mining Bitcoin (BTC) fell 7.32% this Tuesday (6), with miners turning off the machines amid the prolonged period of low market that erodes the profits of the activity.
Miners need to sell Bitcoin to fund operations, so the price drop directly affects the health of the business. By turning off the machines, these companies impact the mining difficulty, which changes automatically as dictated by the cryptocurrency software and refers to the computational power required to “create” blocks (file with transactions) on the blockchain.
Bitcoin’s current network adjustment represents the biggest drop in difficulty since July 2021, data from mining pool BTC.com shows. That month, several miners abandoned the network after the activity was banned in China. At the time, the country was the largest cryptocurrency mining hub in the world.
The mining difficulty automatically adjusts according to the hashrate (computing power) available, so as to keep the time needed to mine a block of BTC stable at around 10 minutes: the more miners are working, the higher the difficulty.
In recent months, Bitcoin miners have been affected by the drop in the price of Bitcoin, which has had an impact on revenue and combined with the already growing increase in the electricity bill, also raising operating costs. Big miners like Core Scientific and Argo Blockchain are grappling with liquidity crises, while Compute North has filed for bankruptcy.
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The situation was aggravated by new and more efficient machines being delivered and more miners entering the activity – some projects started months ago have come to fruition, raising the hashrate and thus evidencing greater competition in the field. Between the beginning of August and the last adjustment on November 21st, the hashrate and difficulty increased by a third.
The reality of crypto winter now seems to have caught up with the mining industry, and BTC miners are shutting down their machines. O hashrate started to fall in mid-November, but is still well above the levels seen after China’s crackdown on the industry.
Mining profitability has fallen by about 20% in the past month, according to the Luxor price indicator.
At these “low profitability levels, even miners using energy-efficient machines like the Antminer S19j Pro need access to electricity priced at less than $0.08 per kWh,” said Jaran Mellerud, an analyst at Luxor. . While the average price for energy on the grid is around $0.05 per kilowatt-hour (kWh), many miners are paying around $0.07 to $0.08 per kWh, Mellerud said. (The values refer to the United States, where the company is located).
In addition, energy prices have increased in recent days, along with natural gas. “Miners who buy electricity on demand and are already operating close to break-even may have seen their electricity prices rise enough to put their operations in negative cash flow territory,” Mellerud said.
The drop in hashrate and difficulty does not make the network more vulnerable to attacks. Computing power is spread across five large mining pools and 12 smaller ones, data from BTC.com shows.
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