Mining is crucial to function of Bitcoin and many other cryptocurrencies for validations on the blockchain and to generate available assets. The difficulty of hashing Bitcoin is adjusted habitually every two weeks, ensuring that the 10-minute block time remains consistent. In a recent report by BTC.com, it seems that the mining difficulty of Bitcoin has experienced the largest drop in its lifetime, experiencing a -15% adjustment.
#Bitcoin just had its second largest drop in mining difficulty in history: -15.1%. This is the current ranking:
— Fernando Ulrich (@fernandoulrich) December 3, 2018
Mining hardware seems to be improving in the crypto world, while smaller companies decide to fade away, which could be the reason for the drastic decrease in mining difficulty. The last time this kind of drop happened for Bitcoin was back on October 31st, 2011 when it took a 18.03% drop, followed by a 13.09%.
Even though this sounds like a problem, it could help the mining efforts that were hanging on for reprieve in the middle of their major losses. The users that have more powerful and efficient computers could even create more competitiveness with their hashrate by just switching on their ASICs.
Atulya Sarin, a professor at Leavy School of Business, recently wrote an opinion piece for MarketWatch, claiming that the drop in mining profitability is a bad sign for Bitcoin’s ability to hang on to their own value. He commented that the majority of miners don’t prioritize ledger security, but instead are
“fair-weather miners looking for a quick buck who could quickly disappear once the opportunity dissolves.”
Sarin continues, writing,
“Mining at a cost higher than the cost at which you can sell in the futures market destroys value. So, any rational investor […] has no incentive to mine if the cost of mining is higher than the future price and is better off buying in the futures market… Absent the mining activity, Bitcoin is just a set of encrypted numbers with no value.”
CEO Shixing Mao of the F2Pool crypto mining pool brought forth some important data about mining profitability in this scenario. The break-even point, according to Mao, is somewhere between $3,891 and $11,581, which can vary with the equipment available. When he originally forecast this information, Bitcoin was still above $6,000.
Presently, Bitcoin is trading at $3,868.15 after a 3.61% loss in the last 24 hours. Though Bitcoin managed to hold a spot over the weekend at over $4,000, they have fallen short today.