Miner Revenues Crash, But This Has Always Marked Bitcoin Price Bottoms

Cryptocurrency mining can be a very profitable investment. But to make money on the extraction of currencies (like bitcoin to monero exchange), you need to be well versed in the nuances of the industry. One of the most important concepts for any miner is the difficulty of mining. Income directly depends on the complexity of mining. This article explains in detail what mining difficulty is, how it is formed and what it depends on.

What does the term “mining difficulty” mean?

Cryptocurrency mining is a process that involves generating new blocks of the blockchain chain and recording transactions. Miners can be compared to accountants who constantly work to keep the books up to date by recording all transfers. 

One of the features of cryptocurrencies is their deflationary nature. This means that the total number of mined coins cannot exceed the number specified by the program code. For example, the maximum number of bitcoins is 21 million coins. Moreover, the last bitcoin will be mined only in 2140. Despite the number of miners, only 12.5 BTC is mined every 10 minutes. These coins are distributed among the miners according to the consumed computing power. The reward for the signed block does not increase. And if the number of miners increases, then the income of each individual miner is proportionally reduced. 

Where to find the difficulty of mining.

Mining difficulty is a dynamic indicator that is recalculated periodically. As the processing power of the mining equipment increases, so does the complexity. It is best to look for up-to-date information on the state of complexity of cryptocurrency mining on the official websites of currencies. 

Mining difficulty: what it affects and why it grows.

The difficulty of mining has a decisive impact on the income of the miner. The number of coins mined is inversely proportional to the difficulty of mining. If the complexity of the network increases by 20%, then the income in cryptocurrency of each individual miner is reduced by 20%.

For example, the antminer s7 bitcoin mining ASIC in mid-2017 (or rather, with difficulty as of July 1, 2017) mined 0.06 BTC per month. But the complexity of the Bitcoin network has grown steadily. As of November 1, 2017, the same equipment will produce 0.026 BTC per month. The miner’s income dropped by more than half in just 4 months.

This is the logic behind dynamic complexity cryptocurrency creators. And although there is no direct relationship between the price of a currency and how difficult it is to mine it, there is still an indirect relationship. The rise in complexity is assumed to mean an increase in the popularity of cryptocurrency among the general public. Someone who has learned about decentralized currencies will try to mine. This will lead to increased complexity. But at the same time, the demand is likely to grow, and, therefore, the exchange rate. It turns out that the growing interest in society stimulates both the growth of the exchange rate and the growth of the complexity of mining.

From a technical point of view, the mining difficulty indicator depends on:

• hashrate of the network (the number and processing power of the equipment of all miners);
• mining speed of 2016 blocks;

All indicators are in direct proportion. The growth in the network hash rate means that new entrants have joined the mining industry and the competition has increased. With an increase in the number of miners, the time spent searching for the next block decreases. After block 2016, the mining difficulty is recalculated. The change in the indicator is described by the regularity.