Bitcoin mining difficulty surges as miners follow the bulls
Just like traders, miners are piling back into Bitcoin as the price continues to surge. After coming off the boil once hitting a year-to-date high on June 26th, BTC has rebounded and is within striking distance of the key $14,000 handle.
The huge appreciation seen in Bitcoin has not gone unnoticed in the mining community. Miners earn newly-minted Bitcoin as rewards when they process transactions – using computational power to solve complex proof-of-work algorithms to verify transactions and record the data as a new block on the chain.
Competition for those rewards is heating up. Multiple miners work on the same bundle of transactions, but only the first to correctly complete the algorithm in the ‘block header’ adds their block to the chain and earns the reward. This is shown by the biggest two-week rise in mining difficulty in 12 months.
Difficulty is adjusted every two weeks to make sure that new blocks are added to the chain at a consistent rate. This is done every 2016 blocks – at a rate of 10 minutes per block this should take two weeks to discover the next 2016. If more blocks than that are added during the previous two-week period then the difficulty is increased to bring the rate of discovery back down.
Because of this, Bitcoins are always produced at more-or-less the same rate. No matter how popular BTC mining becomes again, the market isn’t facing an increase in supply – if prices are going to fall, it won’t be because of increased mining activity.
How does this affect the BTC outlook?
The increased mining difficulty does nothing to change market fundamentals, but it does signal increased confidence that at least some of the huge gains recorded during the recent rally can be consolidated.
Whether or not a break above $14,000 and a move towards the all-time high near $20,000 is on the cards, the signs are that the market expects to leave 2019’s $3,300 lows far behind.