Mining difficulty — this is a key feature of the Bitcoin blockchain, which mainly exists to control cryptocurrency inflation. Although the supply of BTC is limited, it has not yet been reached.
Miners are "minting" new BTC by mining blocks in the network and getting compensated for it. These rewards always have a fixed amount of BTC. It only changes during halvings, which occur approximately once every four years and permanently halve the reward.
Thus, the only way to increase the coinage rate — is to speed up block mining. Miners can do this by adding additional processing power, thus increasing the overall hashrate.
This effect, however, only lasts for a moment, thanks to the existence of complexity. In a universe where the BTC network had no built-in complexity, miners could simply keep increasing the hashrate to mint the asset faster, which would eventually cause the coin's value to be subject to high inflation.
Satoshi predicted this problem and programmed the Bitcoin blockchain to operate at a standard block production rate — 10 minutes per block.
Whenever miners deviate from this speed by decreasing or increasing the hashrate, the BTC network changes the difficulty just enough to counteract the change in hashrate. These adjustments occur approximately every two weeks and are fully automatic.
Key Reasons for Increasing Mining Difficulty
The difficulty of Bitcoin mining increases for several key reasons, which are related to the peculiarities of the network itself and the Bitcoin economy. Here are the main ones:
- Periodic difficulty adjustment: The Bitcoin blockchain is configured in such a way that the mining difficulty is adjusted every 2016 blocks (approximately every two weeks) in order to maintain the time to find a new block at the level of 10 minutes. If blocks are found faster than this, then the difficulty is increased to slow down the process of finding blocks and vice versa.
- Increasing the network hashrate: Hashrate of the Bitcoin network — is the total computing power used for mining and confirming transactions. As more miners and mining farms join the network, the overall hashrate increases. To maintain a stable block finding time, the network automatically increases the difficulty to compensate for the increase in hash rate and maintain stability in the transaction confirmation process.
- Increasing competition among miners: The difficulty of mining also increases due to high competition among miners. As Bitcoin prices increase, more investment in mining equipment and infrastructure is attracted. This results in more participants seeking to mine Bitcoins, which increases the total computing power of the network and thus requires a difficulty adjustment.
- Block reward reduction: Every four years "halving" (halving the block reward). From 2024, the reward is 3.125 BTC per block. As a result of the decrease in reward, the competition to obtain a block becomes more intense as miners try to maximize their profit, which can also contribute to the increase in hashrate and difficulty.
The last adjustment of the Bitcoin network happened very recently and significantly increased the difficulty of mining. . Bitcoin's average hashrate set a new record — 658 EH/s
This spike in processing power meant that miners were mining blocks much faster than the network predicted, so it increased the difficulty by more than 10% to slow miners down to the standard pace.