Bitcoin’s Mining Challenge Reaches New Peak

Bitcoin mining has reached a new all-time high mark, but it is a double-edged sword for the network’s miners. The Bitcoin blockchain mining difficulty surpassed 135 trillion, meaning bitcoin miners must now use more energy and computing effort than ever before in order to add a new block to the blockchain to earn their rewards. This new all-time high comes as the bitcoin network’s overall hashrate, or computing power, has decreased from its highs during the summer, creating a further squeeze on profitability, especially for smaller miners.

The Balancing Act of Difficulty and Hashrate

To make sense of what we’re seeing, we need to examine two principal concepts: difficulty and hashrate. Hashrate is a measure of the total computational power currently being dedicated to mining Bitcoin. Difficulty is a self-adjusting process that regulates the rate by which new blocks are created to fairly equal 10 minutes. When the hashrate goes up, difficulty also increases to maintain stable block times, and when the hashrate falls, difficulty falls with it. The challenge today is that we are experiencing increasing difficulty while at the same time a hashrate that is falling from its previous all-time high. Think of it as a race where the terrain has gotten steeper but some of the racers have slowed down.

The Big Players vs. The Solo Acts

This increased difficulty puts a lot of pressure on miners’ profit margins. Electricity, expensive hardware, and maintenance costs all come fast and furious. It is here we see a clear break in the mining community. Operations on a large scale enjoy massive resources and could afford to change equipment and shift to a cheaper power source than its smaller rivals. Large-scale mining has the financial power to adapt; independent and smaller-scale miners tend to not be so lucky; squeezing even lower profit margins when costs increase raises concerns of centralising power.

Against All Odds: The Solo Miner’s Success

Despite the increasingly difficult landscape, there are still glimmers of hope for the individual miner. A recent report covered the instances of three solo miners who found a block in the last few days and claimed the entire block reward (which for a lucky miner is 3.125 BTC + transaction fees). Finding a block as a solo miner is rare, but it is a fantastic example of the decentralized nature of Bitcoin. A solo miner found a block on July 3, and they received a block reward worth almost $350,000. Another, on July 26, netted over $373,000. And a third on August 17, also received a payout of roughly $373,000. These stories are a powerful reminder that while joining a mining pool is the more predictable path, luck can still play a significant role.

The Role of Mining Pools

For the vast majority of miners, joining a mining pool is the most sensible strategy. A mining pool is a group of miners that combine their computing powers in order to solve a block on the blockchain at the same time. Once a block is mined, the reward is distributed among all of the members depending on how much computing power each member contributed as a group. This model insures a steady consistent income, albeit usually a smaller one, that mitigates the fluctuations of solo mining. Miners using have pool mining have a way of avoiding the long dry spells of waiting to find a block, as the mining difficulty of the blockchain increases.

The Big Picture and the Road Ahead

Considering the overall market, the present mining situation is only part of the picture. September has historically been a bad month for Bitcoin because historically, the average return of Bitcoin returning negative in the past. However, last year was strong positive performance, turning the trend upside down. The varied historical information reminds us that previous performance is not indicative of future performance. For now, miners and investors in general are paying close attention. The dynamic relationship between mining difficulty, hashrate, and market momentum will both consider a big picture for Bitcoin for the immediate future.

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