Bitcoin’s price has been all over the map this year, swinging from lows of barely more than US$3,000 to highs of around $13,000. But over that same time, Bitcoin's mining difficulty, which measures the difficulty of the computing task required to mine new coins and create new blocks on the chain, has been climbing with unprecedented consistency.
Bitcoin’s mining difficulty is adjusted roughly every two weeks to factor in the hashing power of new miners on the network. While the general trend has been upward almost since the network’s inception, it’s common for there to be brief but significant dips. In December of 2018, for example, mining difficulty dropped three straight times in a row, for a total drop of almost 30%.
That’s something that Bitcoin simply hasn’t done this year. To date, BTC mining difficulty has dropped five times this calendar year, but never by more than a measly 1.18%, according to BTC.com. That’s unprecedented. No previous year has seen its biggest drop be that low. Most years see at least one drop of over 5%.
Of course, calendar year 2019 isn’t over yet, and it’s worth pointing out that at this time last year, Bitcoin’s mining difficulty had only dropped once (although that was by 3.45%, much more significant than any of 2019’s drops).
If the trend continues, however, it suggests that Bitcoin’s mining community may be less sensitive to the currency’s price swings than ever before.
To understand why, it’s worth reviewing the basics of mining difficulty. Bitcoin’s network is set up to produce 2016 new blocks every two-week period. Keeping that rate steady is important for the operations of the network. Blocks are generated by miners’ systems solving math problems, but it might be more helpful to think of miners as more like the players in a lottery, and the mining difficulty as the (very low) chance each individual player has to win. Each time someone “wins” the lottery, a block is created.
Since the Bitcoin network needs blocks to be generated at a predictable rate, the difficulty of this “lottery” has to change depending on how many “players” (miners) are involved. If a lot of miners leave all at once, for example, the mining difficulty has to be reduced, or the remaining miners wouldn’t have the power needed to generate new blocks at the rate needed to keep the network running.
Although there’s more complexity to the Bitcoin mining system than what’s described above, this basic principle suggests that Bitcoin’s unflinching upward movement this year is probably a bullish sign. Investors come and go, and the price fluctuates up and down, but mining interest in Bitcoin is pretty clearly on the rise, and this year it has been steadier than ever.
