Bitcoin difficulty adjustments lead to hashrate decline

Data shows that the recent downward adjustment in Bitcoin mining difficulty has seen the hashrate bounce back up.

Bitcoin Mining Hashrate observes increase during the last couple of weeks

According to the latest weekly report from Arcane Research, the hashrate has risen following the biggest drop in mining difficulty in a year.

“Mining hashrate” is an indicator that measures the total amount of computing power connected to the Bitcoin network.

Higher values ​​of the metric usually result in faster performance of the blockchain and a greater degree of decentralization of the individual machines leads to stronger security.

The hashrate can also be considered a representation of the competition between the individual miners. Thus, more the indicator’s value, higher is the competition that miners face.

A feature of the Bitcoin network is that it tries to maintain a constant “block production rate” (which basically means it tries to keep the transactions per day fixed).

But when the crypto’s hashrate fluctuates, so does the block rate. For example, if some miners disconnect from the network, the speed of hashing transactions slows down and fewer blocks than necessary are mined.

To counter this, what the blockchain does is reduce the “mining difficulty” of the network so that miners find it easier to solve their computing tasks and hash transactions closer to their desired speed.

Now, here is a chart showing the trend of the 7-day average Bitcoin mining hashrate over the past year:

The value of the metric seems to have observed some rise in recent days | Source: Arcane Research's The Weekly Update - Week 30, 2022

As you can see in the graph above, the Bitcoin mining hash rate had been going down for a while, until about two weeks ago.

Due to this constant downward trend, network issues saw three consecutive negative adjustments, the last of which was the biggest change since a year ago.

The reason behind the falling hash rate was the diminishing returns for the miners, mainly caused by the BTC price plunging this year.

However, since the difficulty has seen a significant pull-down, the hash rate has jumped back up a bit. This is because a lower network difficulty results in higher earnings for miners.

However, the block production has now increased to higher than necessary, so the next adjustment is expected to bring with it a higher difficulty level for the miners again.

BTC price

At the time of writing, Bitcoin’s price is floating around $23.3k, up 9% in the last week.

Looks like the value of the crypto has been mostly consolidating sideways during the last few days | Source: BTCUSD on TradingView

Featured image from Dmitry Demidko on Unsplash.com, charts from TradingView.com, Arcane Research