What the next level of Bitcoin mining difficulty will bring
Bitcoin’s mining difficulty is set to jump tomorrow as the “work” part of proof of work shifts to yet another level.
The price of the largest cryptocurrency by market capitalization (despite falling today) has been on a roll this year – it’s up more than 75% since the start of 2023. Another metric that continues to rise is the asset’s mining difficulty, which is expected to rise from 47 .89 trillion hashes to 48.53 hashes tomorrow, according to CoinWarz data.
Bitcoin mining is the process of using powerful computers to verify transactions on the blockchain. Miners – which today are usually large operations that use server farms and a lot of energy – receive newly minted Bitcoins for their work.
As mining becomes more difficult, it requires more advanced technology and overall power to produce the same amount of Bitcoin.
This can hit miners hard, especially during one bear market: with the price of Bitcoin down from its peak of $69,044 in November 2021, some miners have struggled to make money and have instead had to sell their crypto reserves or turn off completely.
But the price of Bitcoin is on the rise this year, surpassing its difficulty. This should give miners an easier path forward, according to Charles Chong, Senior Management Business Development at US Bitcoin mining giant Foundry.
“In 2023, Bitcoin price growth has dramatically outpaced difficulty increase as there are still restrictions on the availability of energy sites, especially in the United States, relieving miners from the bottom of mining economics in the fourth quarter of 2022,” he said Decrypt.
The increase in difficulty, and thus likely power consumption, adds fuel to the long-standing criticism of Bitcoin mining that environmentally harmful. Therefore, more miners are turning to renewable energy sources to keep the network secure. One of them, Las Vegas-based CleanSpark, said the upward trajectory of mining difficulties likely means industry consolidation.
“Unless there is a big price increase, I see the smaller miners being bought out by larger companies or closing their doors,” said Taylor Monnig, CTO of CleanSpark, arguing that it will be “extremely difficult to maintain profitability without a massive price run” if an operation consumes more than 30-35 watts per terahash (w/th).
She added that mining difficulty increases will continue to trend upward at 3-7% per month, but could increase more if major energy companies decide to get involved.
Tim Rainey, treasurer at New York-based cryptocurrency data center and power generation company Greenidge Generation Holdings, told Decrypt that no major change is expected with tomorrow’s difficulty increase because most mining companies will still be able to reach the “hash price” – a term that measures Bitcoin’s mining revenue potential.
He added that this was more related to “Bitcoin’s recent price surge” than any change in demand for new machines.
So while Bitcoin’s price and difficulty are set to continue to rise, it won’t have a big impact on the mining industry just yet.
