On-chain data shows Bitcoin network difficulty is set for a significant jump in the coming correction. Here’s what’s behind it.
Bitcoin Difficulty Rises Largely in Thursday’s Correction
Bitcoin “Difficulty” is a feature built into the blockchain that controls how hard miners will mine a block in the network. The feature exists to limit the speed at which these chain validators can earn mining rewards.
Satoshi is coded with a simple rule for the network to follow: maintain a block production rate of every 10 minutes per block. Whenever miners produce an average block in a time faster than 10 minutes, the blockchain raises its difficulty to bring them back to normal. Similarly, their slowness forces the network to release the metric instead.
Changes in Difficulty occur approximately every two weeks in events known as adjustments. The next such event will take place tomorrow, February 19. Below are the details related to this correction from CoinWarz.
Miners have been much faster than expected since the last adjustment | Source: CoinWarz
As can be seen, the average block time on the Bitcoin network has stood at 8.75 minutes since the previous correction, which means that the miners have been faster than usual.
Because of this fast pace, the network is estimated to increase its difficulty by more than 14% on Thursday. This is an unusually large jump in the index, and the reason behind it lies in equally unusual circumstances.
In late January, a massive snowstorm swept through the United States, causing disruption to the nation’s infrastructure, including the power grid. As a response to extreme weather, Bitcoin miners living in the country reduce their power to reduce the pressure on the grid.
Foundry USA, the world’s largest BTC mining pool, has seen a significant drop of nearly 60% in its overall computing power or “Hashrate” as miners retreat. The drop in global Hashrate was so great that the subsequent difficulty adjustment resulted in a drop of around 11%.
However, while the drop in Hashrate was impressive, it wasn’t going to be permanent. As the chart below of the 7-day Hashrate average from Blockchain.com shows, the index has already bounced back to roughly the same level as on January 24, before the blizzard took American mining equipment offline.
Looks like the value of the metric has shot up in recent days | Source: Blockchain.com
The Bitcoin network had reduced its Difficulty based on the speed miners were working due to the reduction of the US capacity, but since the Hashrate went back, the blockchain is now forced to adjust the metric on the other hand.
BTC price
Bitcoin has continued to move sideways recently as its price is still trading around $67,600.
The trend in the price of the coin over the last five days | Source: BTCUSDT on TradingView
Featured image from Dall-E, chart from TradingView.com
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