Bitcoin’s mining difficulty has dropped more than 7 percent over the past 24 hours as the fallout of the prolonged market rout continues. Despite a recent recovery that has taken bitcoin above $4,000, many miners are still finding it difficult to remain profitable or break even. CCN reported in November that any cryptocurrency miners in China are dumping their mining rigs or re-purposing them for non-blockchain uses like video rendering and cloud computing.
More recently, CCN also reported that several cryptocurrency mining operations across Europe and Asia are shutting down because of the bear market, including Bladetech, a startup behind what was to be the largest crypto mining facility in the UK.
Difficulty Adjustment and Implications
In the light of the bitcoin blockchain’s reduced hashrate caused by withdrawing miners, the network is designed to automatically adjust the difficulty level in order to avoid a situation where there is a huge transaction confirmation backlog and high confirmation fees. The 7 percent drop in difficulty is likely to be the start of a similar difficulty readjustment pattern as bitcoin below $6,000 increasingly becomes a prolonged reality.
As showed in the above chart, Bitcoin’s difficulty fell from about 5.8TH/second to about 5TH/second on December 19. In contrast Bitcoin Cash and Bitcoin SV have remained stable at about 1TH/second.
The implication of this is that while interest in mining bitcoin is declining, this has not impacted positively on interest in mining Bitcoin Cash and Bitcoin SV. In other words, miners leaving bitcoin are not merely switching to other cryptographically similar cryptocurrencies, but are exiting the cryptocurrency mining space altogether. This is not likely to create any disruption in the normal functioning of bitcoin in the short term because the dynamic difficulty adjustment system will ensure that there is enough hashpower to service the network.
The real danger however lies in the fact that the existing situation can in itself become an obstacle to mass cryptocurrency adoption in the long term if low prices persist. The wider cryptocurrency market has a well-documented history of tracking bitcoin’s moves closely, which means that a perceived reduction of interest in mining bitcoin will eventually lead to an exodus of miners from cryptocurrency altogether which could at least theoretically jeopardise the security of cryptocurrencies.
At the moment, it remains too early to say that this is happening, and a significant upward price movement could change the situation almost overnight.