Crypto

Bitcoin Mining in a Recession is Good News for Survivors

Fewer miners, more bitcoins? – Bitcoin (BTC) Proof of Work (PoW) Consensus requires (now dedicated/dedicated) computers that perform calculations to validate blocks of network transactions. This process, mining, is quite affected by BTC price fluctuations. Thus, the fall in prices of recent months is beginning to be felt, and some miners are giving up. As we will see, this results in an overall reduction in mining difficulty.

Less Competition, More Bitcoin

The hash rate or hash rate of the Bitcoin network is the total processing power of the computing machines that process the calculations required for the Proof of Work consensus. Satoshi Nakamoto, the creator of Bitcoin, ensured that the more miners/devices doing these calculations, the more difficult it becomes to solve them. Vice versa.

When the price of BTC plummeted to $20,000 (or even below that amount not so long ago), many crypto miners saw that their activities were no longer profitable enough to continue. In particular, due to the cost of electricity, the most vulnerable preferred to stop their cars, at least temporarily.

If initially this only affected the overall processing power (hence the hashrate) downward, then Bitcoin is thus programmed in such a way that the difficulty of mining adapts, however with a slight delay in time. Thus, according to Blockchain.com, the difficulty has decreased by about 5% to about 27.7 T (Teras).

The difficulty of mining the Bitcoin network.

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“Survivors” of mining on a small cloud

Thus, the difficulty of bitcoin mining is adjusted automatically. This way, miners can continue to find/mine blocks of transactions at the same rate. This adjustment occurs approximately every two weeks. To be precise, every 2016 blocks of BTC transactions, about 10 minutes each.

If enough of the less profitable miners give up their positions, two weeks after the hashrate drop, the difficulty will drop, reflecting less competition. Result: it becomes statistically easier for the remaining miners to mine/earn bitcoins.

The benefit of falling BTC prices is to trigger a kind of “natural selection” where miners with the lowest production cost (electricity costs) are rewarded.

So it favors bitcoin production sites where there is excess capacity or even wastage in energy production because the cost per kilowatt hour is usually very low there. And if the price of bitcoin rises, that will be good too, this time for network security. Indeed, if new (or old) miners (re) enter the race, the difficulty will increase again. And the higher the difficulty, the lower the risk of a 51% attack. Satoshi Nakamoto came up with a damn well thought out invention.

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