Today, bitcoin difficulty decreased by 6% to 15.14 trillion.
This is the third downwards difficulty adjustment in 2020 so far.
A negative difficulty adjustment was expected given the recent decline in hash rate after the halving.
On Sunday, the bitcoin network hash rate declined almost 48% from the all-time high of 151.9 Eh/s, the day the digital asset had its third halving. Currently, the hashing rate is at 92.46 Eh/s, as per Coinwarz.com.
“The bitcoin network hash rate has declined since the ‘halving’–posting one of the largest negative percentage changes since 2016,” noted TradeBlock.
Because small and inefficient miners left the network after their profitability was reduced in half, they removed their machines and as a result, the hash rate dropped.
However, a surge of 1,350% in the average transaction fees of bitcoin in the past month compensated these miners.
The halving-related sentiments are expected to continue to impact the market. But it's’ to be seen whether bitcoin can successfully transition to a model where miners’ revenue is predominantly based on fees.
This difficulty drop won't be enough
The drop in hash rate also has the block generation slowing down.
On May 17, bitcoin only mined 95 blocks and in the last 10 years, there have been only 8 such days when the network mined less than 100 blocks.
The block time has been increasing ever since halving, going to over 14 minutes on May 17, as per Bitinfocharts.
This block generation depends on both the hash rate and mining difficulty.
Bitcoin mining difficulty determines how difficult it is to mine the next block. It keeps the block generation in line with the set (10 minutes) block time. As more hashing power is added to the network, the difficulty must increase to ensure blocks are not generated too quickly as was the case before halving when block generation took 7.5 minutes.
Although today the difficulty was lowered by 6%, it still won’t be enough as the current block generation is taking 13 minutes 51 seconds, and “we are running late 37% behind the schedule.”
However, the hash rate has started recovering and a “significant number” of S9 mining rigs that were offline prior to halving are turned back on.
This could be the result of a recent appreciation in the price of bitcoin, which spiked 14% since the halving. Currently, we are trading above $9,750.
Moreover, “The flood season will benefit Chinese miners for cheaper electricity fees, and hence mining costs. Maybe more big players join Bitmain & F2pool in the game, like local gov in China,” said Alysa Xu, Chief Strategy Officer OKEx.