The computational power required to mine new Bitcoin (BTC) has surged to a record level, creating potential challenges for miners and possibly influencing BTC prices. According to data from Coinwarz, mining difficulty reached 92.6 terahashes as of late Wednesday. This marks an increase of four units in the past month and a rise of over 10% since early July. At the time of writing, BTC-USDT price hovers at $92,281 on Gate.io.
Mining difficulty, expressed in terahashes, represents the amount of computational power necessary to process blocks on a proof-of-work blockchain like Bitcoin. It essentially measures how hard and time-consuming it is to find the correct hash for each block. Miners, who use extensive computing resources to mine blocks, are rewarded with newly minted Bitcoin, which they typically sell on the open market to cover expenses and make a profit.
The Bitcoin network automatically adjusts the difficulty of mining new blocks every 2,016 blocks, or roughly every two weeks, based on the total number of miners and their combined hashpower, which reflects the overall computing power of the network. The next adjustment is expected on September 27, where mining difficulty is projected to decrease from 92.67 T to 77.12 T, according to Coinwarz.
An increase in mining difficulty can reduce profitability for mining companies, as the costs of maintaining operations rise, further straining an already challenging environment for these firms. According to an analyst at SOFA, many mining companies have faced revenue pressures, particularly after the halving event. The analyst also noted that recent selling pressure may be driven primarily by trading stopouts and outflows from ETFs.
Some market experts believe that Bitcoin prices could be affected by broader market conditions and how miners respond to the increased difficulty. One expert emphasized that there isn’t a direct cause-and-effect relationship between mining difficulty and BTC price. Although higher mining difficulty can increase stress on miners, the impact depends on how each miner adapts. Over time, miners typically cope with rising difficulty by upgrading their equipment or pursuing cost-cutting strategies, such as seeking cheaper electricity sources. Historically, when averaged out, there has been no significant correlation between BTC prices and mining difficulty levels.
Another research expert from Presto suggested that selling pressure could be a possibility, depending on overall market sentiment. If the stock markets or the broader financial markets show signs of weakness, some miners may decide to sell their Bitcoin holdings, driven by the belief that it is better to take a smaller loss now than a larger one later. If you’re new to cryptocurrency trading and unsure about the process, you can visit Gate.io’s “How to Buy BTC” page for a detailed step-by-step tutorial designed for beginners.
Miners need a busy network
Mining revenue can be influenced by how busy the Bitcoin network is. Bitcoin miners earn in two primary ways: block rewards and transaction fees. Block rewards are the fixed amount of new Bitcoin that miners receive for successfully mining a block, which is currently set at 6.25 BTC and will halve roughly every four years. This block reward provides the bulk of miners’ revenue, but transaction fees—paid by users to prioritize their transactions—also play a crucial role, especially when the network experiences high activity.
When the network is busy, with many transactions waiting to be processed, miners can earn significantly higher transaction fees. Users tend to offer higher fees to get their transactions confirmed faster, increasing the total earnings per block for miners. Conversely, when the network is less congested, users might pay lower fees, reducing the transaction fee component of miners’ earnings. Thus, a more active network with more frequent transactions generally leads to higher revenues for miners due to increased fees.
Currently, the Bitcoin network has a large proportion of long-term holders, known as “HODLers,” who do not engage in frequent transactions. This reduced activity can lead to fewer transactions being processed, limiting the transaction fees that miners can collect. In such an environment, miners are more reliant on the block reward for revenue. However, as the block reward continues to halve every four years, transaction fees will become a more critical source of income. If network activity remains low due to the dominance of long-term holders, miners could face additional revenue challenges in the future, especially when rewards decrease further.
While the fixed block reward provides consistent income, mining revenue is highly sensitive to network activity. If transactions are low, as is the case when many users are holding Bitcoin rather than transacting, miners may earn less in transaction fees, potentially affecting their overall profitability.
Final words
Happy miners – happy network, and therefore an ever-increasing BTC price. This is why miners don’t only depend on mining difficulty but also how busy the network is. Along these lines, it is critical for Bitcoin as a network, to find and accommodate for additional use cases. As for BTC price, it is of course closely linked to the network’s ecosystem and hence it will only thrive if every other important part and actor benefit from being part of it.