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Bitcoin Mining Difficulty (Explained)

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Bitcoin mining difficulty measures the complexity of mining Bitcoin blocks. Bitcoin mining is the process of verifying pending BTC transactions in a block, such as transfers between wallets.

A new block is mined every 10 minutes (approx.). The first Bitcoin miner to mine the block earns Bitcoin rewards, which are not from the network fees. A new bitcoin is created (‘minted’) and sent to the miner. When Bitcoin reaches its maximum supply (21 million), miners will be compensated for the network fees instead.

BTC blocks on the left are pending. BTC blocks on the right were mined with the name of the miner that was rewarded with Bitcoin | source

In the beginning, it could’ve been done by a regular computer. Currently, powerful processors are required to earn Bitcoin by working out the hash (hence the term proof-of-work).

What is Bitcoin mining difficulty?

Bitcoin mining difficulty refers to the difficulty of finding the nonce in order to mine blocks. The nonce is a random number for the block. The first miner who discovers the nonce earns Bitcoin minted on the chain as a reward.

Imagine you’re picking a random number between 1 and 100, and your goal is to pick a number below a target. If the target is 50, it will take about 2 minutes to get a number below it. If the target drops to 20, it will take 5 minutes on average. The lower the target, the harder it gets to win. Difficulty is like setting this target to control how long it takes to pick a winning number.

The network difficulty adjusts every 2,016 blocks, or approximately every two weeks, to ensure that blocks are mined relatively steadily—about every 10 minutes. 

Bitcoin mining difficulty since BTC inception | source

If more Bitcoin miners join the network, the difficulty of keeping the block time consistent increases. Conversely, if miners leave, Bitcoin mining difficulty decreases. This dynamic adjustment helps maintain the network’s security and stability, preventing major fluctuations in mining speed.

What is the Hash Rate?

The hash rate represents the total computational power used by miners to solve the nonce. It measures how many hashes, or guesses, a miner can make per second in their attempt to find the solution. 

The higher the hash rate, the more likely a miner is to guess the nonce, add a new block to the blockchain, and get rewarded. A higher hash rate means more computational power is being applied to securing the network. 

If the overall hash rate increases across the network, mining difficulty will adjust accordingly to maintain a consistent block time (of around 10 minutes).

What determines the mining difficulty?

The total combined hash rate of the Bitcoin network determines mining difficulty. When more miners participate, the hash rate increases, making it more difficult to maintain a steady block generation rate. 

If miners upgrade to more powerful equipment, for example, the overall hash rate increases, increasing the mining difficulty. This system keeps the Bitcoin network secure by controlling how quickly new bitcoins are generated.

How do you calculate Bitcoin mining difficulty?

Bitcoin mining difficulty is calculated using the formula:

Difficulty = Maximum Target Value / Current Target Value

Current Target = Maximum Target Value / Difficulty

Here, Bitcoin miners aim to find a hash value equal to or below a specific target value. For the tech-savvy, the maximum target value is the max target for the first Bitcoin block:

0x00000000ffff0000000000000000000000000000000000000000000000000000

The current target value (256-bit, as of block 881,497):

000000000000000000029a8a0000000000000000000000000000000000000000

The maximum target value represents the easiest difficulty level (1), while the current target value reflects the difficulty set for the latest block (currently at 108.11 trillion).

Bitcoin mining difficulty is adjusted every 2 weeks (approx.) to ensure blocks are mined every 10 minutes. If blocks are mined at a faster pace, the difficulty will increase. If it is more than 10 minutes, the difficulty will decrease.

To prevent significant changes in the difficulty, it only increased by 300% or decreased by 75% at the time.

The next Bitcoin difficulty adjustment is expected to occur on February 9, 2025. At the time of this writing, Bitcoin blocks are mined in under 10 seconds, which may increase the difficulty.

When does mining difficulty fall?

Mining difficulty falls if it takes longer than 10 minutes to mine a block. This makes it easier for Bitcoin miners to find blocks, bringing the block generation time closer to the 10-minute target.

Past scenarios when Bitcoin mining difficulty fell

Market crashes: Significant Bitcoin price declines can make mining unprofitable for many operations. This can lead to miners shutting down or reducing their operations, causing a drop in the hash rate and a subsequent decrease in difficulty. For instance, the market downturns of 2018 and 2022 saw notable declines in mining difficulty due to market crashes.

Regulatory crackdowns: Government regulations or crackdowns on mining activities, such as those experienced with the 2021 Crypto ban in China, can force miners to relocate or shut down, temporarily reducing the hash rate and leading to difficulty adjustments.

Natural disasters: Calamities, such as earthquakes or floods, have also disrupted mining operations in certain regions, temporarily reducing the hash rate and subsequently decreasing difficulty.

When does mining difficulty rise?

Mining difficulty rises if it takes less than 10 minutes on average to create a block. The network increases the difficulty, making it harder for Bitcoin miners to add blocks and slowing down the block generation rate.

Past scenarios when Bitcoin mining difficulty increased

Technological advancements: Introducing more powerful and energy-efficient mining hardware has consistently increased the hash rate and, consequently, the mining difficulty.

Competition: As more miners enter the market, the overall hash rate increases, leading to faster block times and subsequent difficulty adjustments. This was particularly evident during the 2017-2018 bull run, attracting many new miners to the network.

Halving events: Bitcoin’s halving events, which reduce the block reward by 50%, can incentivize miners to increase their hash rate to maintain profitability. This often leads to a temporary surge in mining difficulty.

How do you track the difficulty of Bitcoin mining?

You can either calculate the network difficulty on your own or use online tools to track the difficulty.

Coinwarz: Tracks the mining difficulty, block height, etc.

Mempool: Tracks the difficulty, hash rate, and hash rate as a moving average (MA).

How does the mining difficulty affect BTC price?

Mining difficulty and Bitcoin’s price are indirectly connected. When mining becomes more complex, it can reduce miner profitability. This may lead some miners to shut down, lowering the hash rate. On the other hand, lower difficulty makes mining more profitable, attracting more miners and increasing the hash rate.

Miner profitability can also affect Bitcoin’s price. When profits are high, miners may hold onto Bitcoin, limiting supply. When profits are low, miners might sell more Bitcoin, potentially lowering its price.

However, this connection is not straightforward. Other factors, such as market sentiment, regulations, and global economic trends, also play a role in Bitcoin’s price movements. While the network difficulty and price may sometimes correlate, this does not mean one directly causes the other.

Conclusion

Bitcoin miners significantly impact the mining difficulty. The more resources they spend to mine blocks and earn BTC, the faster they can be mined. The network difficulty will increase if blocks are mined too fast (under 10 seconds).

The average block creation is checked every 14 days (approx.) to ensure it is near 10 seconds.

The majority of cryptos and altcoins do not use proof of work. Therefore, not many tokens can be minted with a structure similar to BTC.


FAQ

What does Bitcoin mining difficulty indicate?

What affects Bitcoin mining difficulty?

Is Bitcoin the only cryptocurrency with a mining difficulty?

Is it more difficult for miners to earn Bitcoin if the mining difficulty is high?

Will the mining difficulty always rise?


References

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At ValueWalk, we’re committed to providing accurate, research-backed information. Our editors go above and beyond to ensure our content is trustworthy and transparent.

Sal Miah
Crypto & Fintech Writer

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