Bitcoin network suffers collapse
Photo by Whrelf Siemens from FreeImages

Bitcoin network suffers collapse

By SylarHeisenberg | blockchain-blog | 26 Mar 2020

The Bitcoin Mining Difficulty has recently fallen by over 15 percent. A stronger drop has only occurred once in the entire history of the network.

The Bitcoin Mining Difficulty is the relative difficulty of calculating a valid hash for a new block. Thus, the Difficulty is also an indicator for the security of the entire network. If this Difficulty increases, as it did most recently at the beginning of the month, this is an indication of increased mining activity. In other words: More and more people are switching on their computers to "mine" new Bitcoins.

Bitcoin Mining Difficulty falls

However, if the Mining Difficulty falls, this is an indication that miners are withdrawing from the business. It happened recently: The Mining Difficulty fell over 15 percent on March 26. The Bitcoin network has adjusted the Mining Difficulty in this context from 16.55 trillion to 13.91 trillion.

This "Difficulty Adjustment" is considered the core of the algorithmic monetary policy behind Bitcoin and takes place every 2,016 blocks.

It can be assumed that due to the recent slumps in the crypto market for miners it is simply no longer worthwhile to launch new BTCs. After all, they receive 12.5 BTC for each successfully mined block as a wage from the network and may have to sell them to cover the costs.

The miners in the network are therefore not only mainly responsible for ensuring that the network works. Rather, they are also - at least in part - dependent on the Bitcoin price. After all, they have to buy new equipment at regular intervals in order to keep up with the competition. If prices fall, this can lead to a chain reaction. If the Bitcoin price is too low, some mining equipment may no longer be profitable.

The last similarly large Difficulty Drop occurred in December 2018, but here too, a Bitcoin price collapse led to some miners taking their equipment off line.

Bitcoin not in danger

However, this does not mean there is reason to panic. Even if mining competition is now likely to decrease somewhat, the network will remain in place.

In particular, halving the supply of new bitcoins in May should continue to provide incentives to maintain competition in the network.

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