Bitcoin’s mining difficulty is set to jump tomorrow as the “work” part of proof of work shifts into yet another tier.
The price of the biggest cryptocurrency by market cap (despite dropping today) has been on a roll this year—it’s up over 75% since the start of 2023. Another metric that keeps rising is the asset’s mining difficulty, which is expected to increase from 47.89 trillion hashes to 48.53 hashes tomorrow, according to CoinWarz data.
Bitcoin mining is the process of using powerful computers to verify transactions on the blockchain. Miners—which today are usually large operations using server farms and a lot of energy—receive newly minted Bitcoins for their work.
As mining gets more difficult, it calls for more advanced tech and overall power to produce the same amount of Bitcoin.
This can hit miners hard, especially during a bear market: with the price of Bitcoin down from its $69,044 November 2021 all-time high, some mining operations have struggled to make profit and instead have had to sell their crypto reserves or shut down completely.
But the price of Bitcoin is on the up this year, and is outpacing the increases in difficulty. This should give miners an easier path forward, according to Charles Chong, Senior Management Business Development at American Bitcoin mining giant Foundry.
“In 2023, Bitcoin price growth has dramatically outpaced difficulty increase as there are still constraints on the availability of energy sites, especially in the United States, relieving miners from the trough of mining economics in Q4 2022,” he told Decrypt.
The increase in difficulty, and thus likely power consumption, adds fuel to the longstanding criticism of Bitcoin mining as environmentally damaging. Therefore, more miners are turning to renewable energy sources to keep the network secure. One of them, Las Vegas-based CleanSpark, said that the upward trajectory of mining difficulty likely means industry consolidation.
“Unless there is a major price run, I see the smaller mining firms being bought out by larger companies or shutting their doors,” said Taylor Monnig, CleanSpark VP of Technology, claiming that it will be “extremely hard to maintain profitability without a massive price run” if an operation uses more than 30-35 watts per terahash (w/th).
He added that mining difficulty increases would continue to trend upwards by 3-7% per month but may increase more if major energy companies decide to get involved.
Tim Rainey, treasurer at New York-based cryptocurrency datacenter and power generation company Greenidge Generation Holdings, told Decrypt that no major change is expected with tomorrow’s difficulty increase because most mining companies will still be able to reach the “hasprice”—a term that measures Bitcoin’s mining revenue potential.
He added that this was more related to "Bitcoin's recent price appreciation" due to various changes in the industry following last year's bear market.
So, while Bitcoin’s price and difficulty are set to keep increasing, it won’t have a major impact on the mining industry just yet.