It just got harder and less profitable to mine for bitcoin.
Every 2016 blocks, or about every two weeks, bitcoin resets how tough it is for miners to mine. Early Friday morning, as expected, the bitcoin code automatically made it about 7.3% more difficult to solve a block.
Historically speaking, this spike in difficulty is on the larger side, but it isn’t surprising, nor is it alarming. But it marks the first sizable increase since the Chinese mining ban took effect and serves as confirmation of a trend we already knew was underway: Some of the miners that used to be in China are finding new homes elsewhere.
And while it may not be quite as lucrative to mint bitcoin as it was before the algorithm self-corrected, miners are continuing to make way more money now than they were before China’s crypto crackdown in May.
“Hashrate levels are still down 42.1% from the peak in May 2021 when the China exodus happened,” said Jason Deane, an analyst at crypto advisory firm Quantum Economics. That hashrate deficit means that those plugged into the bitcoin network right now are making bank.
When China kicked out all its miners this spring, more than half the computing power in the bitcoin network went dark. Miners elsewhere on the globe had to pick up the slack. Fewer people and less computing power meant that it was taking longer to verify transactions and mint new bitcoin.
So, like clockwork, the bitcoin algorithm self-corrected for this deviation from the norm, and in July, the network saw a totally unprecedented 28% drop in the difficulty level. Suddenly, it was easier to create new bitcoin, and the world’s mining collective was back to solving blocks of transactions in an average of ten minutes.
This feature of the bitcoin code is a critical part of its network architecture.
This spring, an entire country – which signified 54% of bitcoin’s total hashrate – went offline, and bitcoin didn’t miss a beat.
“There was no downtime whatsoever to the bitcoin network. That’s actually the smartest part of the bitcoin software: the difficulty adjustment,” said bitcoin mining engineer Brandon Arvanaghi.
The entire episode was considered a “black swan” event for the industry, and according to crypto miner Alejandro de la Torre, it also made a whole lot of people much richer.
Now, with the new adjustment, Deane tells CNBC it’s essentially 7.3% less profitable to mine bitcoin post upgrade.
“Assuming your energy cost and hashrate remain unchanged, the calculation really is as simple as it first appears,” said Deane.
The difficulty adjustment also reflects the fact that the mining world has already touched bottom in terms of global hashrate. Since the end of June, miners have been coming back online fast.
“We have seen the bottom of the hashrate decline, and it is nothing but up from here,” said Mike Colyer, CEO of digital currency company Foundry, which helped bring over $300 million of mining equipment into North America.
“This next adjustment reflects the fact that miners are building out capacity and plugging in new machines. There is an enormous amount of machines coming out of China that need to find new homes,” continued Colyer.