The Impact of Covid-19 on Bitcoin Mining Difficulty

October 16, 2020 - Expert Commentary

Bitcoin Mining Difficulty

A global village.

In more ways than anyone could imagine, the world is now inextricably linked. 

The Covid-19 Pandemic exposed the soft underbelly of human civilization. The fact that the world is more connected than ever both in commerce and communications is both a blessing and a weakness. From disruptions to global travel and supply chain shocks, many people and governments were in for a reckoning. 

Even sectors that would seem insulated felt some effect in either direction. Businesses and corporations became ever more reliant on the internet to carry on. 

The cumulative effect was internet and tech stocks soaring to record levels. On the other hand, sectors like airlines saw companies tethering on the edge of bankruptcy. Such was the mixed bag of fortunes that the crisis presented.

Bitcoin has also had an interesting year. When there was full-blown panic in the second week of March, Bitcoin started cratering. The slide was so dramatic that skeptics started claiming this was Bitcoin’s death knell. 

However, Bitcoin leveled off at just below $4,000. This mark effectively wiped out gains that Bitcoin had made for more than a year since the end of the 2018 bear market. What was next? Analysts pondered.

Remarkably, without the benefit of a government stimulus or any centralized help, Bitcoin gradually caught up. At press time, Bitcoin has been steady over the $10,000 mark for several weeks. 

One metric that provides a useful indicator of Bitcoin’s timeline is the mining difficulty. Let’s chart it to see just how tumultuous the year has been.

Bitcoin Mining Difficulty 101

Bitcoin mining difficulty refers to how hard it is for miners to compete for the block rewards. 

See, miners dedicate their computing power to help verify transactions on the Bitcoin network. The miners engage in a competitive process to try and win the right to add the next block of Bitcoin transactions to the Bitcoin blockchain. 

Miners who win earn block rewards of 6.25BTC.

Competition is stiff because miners use sophisticated equipment. In the early years, mining was relatively simple because there were fewer miners allocating hash-power to mining Bitcoin. As the coin got more popular, miners increased and so did the sophistication of the equipment.

After the monster Bitcoin rally of late 2017, miner interest really took off. Bitcoin mining difficulty went up significantly in 2018. 

Unfortunately, cryptocurrencies went through a painful winter that year. This meant that prices began to make mining redundant for some miners. High Bitcoin prices justify mining even when the difficulty is high.

At the end of 2018, some miners, evidentially frustrated by the low prices, decided to switch off their mining rigs. 

Mining difficulty went down from 7.45 trillion to 5.1 trillion between October and December 2018. Then followed a gradual rise as prices picked up in 2019. 

By December 2019, the difficulty was near the 13 trillion mark.

Bitcoin Mining Difficulty In 2020

Mining difficulty has told the tale of Bitcoin’s fortunes this year. 

The difficulty had two significant dips this year. One was between March 10th and 23rd, which coincided with a significant decline in Bitcoin prices. When there are such bad prices, miners with older equipment are simply pushed out of business.

The other dip was in May-June 2020. Why is this period significant? This was the month of Bitcoin halving. When Bitcoin rewards get slashed in half, those with inefficient mining rigs are forced to close shop. 

The effect of such elimination means that miners with new-gen and high-efficiency machines like those VBit Technologies resells are able to make even greater profits. Gradually, the hash rate picks up as more miners adjust to the new block rewards. 

That said, high-efficiency miners were able to make a killing during these two periods. 

The Bitcoin mining difficulty reduction after the Covid-induced market crash and the halving event meant that high-efficiency miners could go into overdrive and harness the lower mining difficulty to their advantage. 

The contrast in fortunes between someone using an Antminer S19 and an S9, for instance, during this period is significant.

The decline in difficulty in Bitcoin mining in June set up the two quarters of 2020 for a historic surge in mining difficulty. And that is precisely what is happening. 

Mining Difficulty in the Past Few Weeks

Bitcoin mining difficulty is back in the headlines. This time, it is because mining difficulty is just soaring to levels unseen in the history of Bitcoin mining. 

It crossed the 17 trillion mark in August and has only continued to go up ever since. In early October 2020, it is above the 19 trillion mark, an all-time record. 

Mining difficulty is now up over 12 percent from where it was in June 2020. Unexpectedly, more hash power is now dedicated to mining Bitcoin than it was prior to the halving event.

This rise is truly remarkable. Those who thought Bitcoin would die a natural death because of COVID-19 are in hiding.  

The fact that both prices and hash rate are at a high level spells good fortune for the pioneer cryptocurrency, at least for the foreseeable future. The higher the Bitcoin hash rate, the more stable the network is. This is the all-important role of miners, besides making a little something on the side for themselves.

The higher prices may be good for those seeking to mine Bitcoin. However, the same is not necessarily true for mining difficulty. The record hash rate means that getting block rewards is now more competitive than it has ever been. Only those with truly elite mining equipment can rise above the competition.

Bitcoin mining is an adjustment process. The pioneer generation of Bitcoin miners needed no more than their home PC to mine Bitcoin. Then things got hotter and they had to use graphics cards to keep up. The next development was the introduction of Application Specific Integrated Circuits (ASIC) rigs. These rigs were a game-changer as Bitcoin mining became an industrial-level efficiency game.

Therefore, only those with equipment like the Antminer S17 OR S19 can remain highly competitive in the high difficulty environment.  High-efficiency mining equipment has gotten miners through the effects of Covid-19 and the halving effect unscathed. 

There is every reason to believe that this range of equipment, which is definitely the fittest, will survive anything thrown at them, until more efficient mining equipment is developed.

The rise in mining difficulty is likely an indicator of strong market sentiment about Bitcoin prices in the near future. 

Mine with VBit Technologies to Access Best Equipment

Efficiency is the name of the game. 

VBit Technologies is an equipment reseller that provides equipment hosting services in North America. You can get in touch with them to procure the latest mining equipment.

VBit has a direct line to the leading mining equipment manufacturer, Bitmain. This allows them to have state-of-the-art equipment ready for delivery.

The hosting services increase efficiency because VBit Technologies has power centers in North America with natural cooling and cheap renewable power. 

These variables are very important in Bitcoin mining, optimizing the activity unlike doing it solo from home. 

Instead of contending with high electricity and cooling costs, leave it to the professionals. There is no need to be fazed by high mining difficulty. Look at it as an opportunity to stand out from the market. 

This is possible with what VBit Technologies provides.

Sign up and mine Bitcoin today!

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