Years ago when Bitcoin was still a technology that was known to geeks and tech-savvy people, Bitcoin mining was a simple process. All a miner needed was a computer and a connection to the internet. However, as the popularity of Bitcoin has shot up, miners have had to continue investing in more sophisticated and expensive equipment to stay in business. This is because the mining difficulty has continued to rise over the years.
So, what is mining difficulty, you ask? It’s a simply a measure of how hard it is to compete for mining rewards on the Bitcoin blockchain. This value shows how difficult it is to find a hash that will be lower than the target which is defined by the system.
The mining difficulty regulates how long it takes for miners to add new blocks of transactions to the Bitcoin blockchain. This value updates after every 2,016 blocks – or roughly every two weeks – to account for any changes in the number of miners and the hash power.
Bitcoin blocks are mined every 10 minutes on average. After every 2,016 blocks, the blockchain automatically adjusts the difficulty. If the average time used to mine a block was lower, say nine minutes, then it follows that the time taken to mine the 2,016 blocks was shorter than was expected. Therefore, the system recalculates the difficulty upwards.
Conversely, if the average time taken to mine a block was higher than the expected 10 minutes, say 11 minutes, the system automatically recalculates the difficulty downward for the next 2,016 blocks.
The Bitcoin blockchain was designed by Satoshi Nakamoto to accommodate the ever-changing factors and to adopt accordingly. This includes the number of miners. In 2018 during the crypto winter, the number of miners went down drastically, hitting its lowest in December. The mining difficulty went down significantly as well in response.
In December, the mining difficulty stood at 5.1 trillion. It has since then shot up and currently stands just north of 10 trillion.
The mining difficulty doesn’t have a maximum value beyond which it can’t rise. The system assesses the hash power in the ecosystem and recalculates the difficulty accordingly. With every increase, miners find it more difficult to earn block rewards unless they upgrade their hardware accordingly.