It has never been more difficult to mine Bitcoin. Over the last fortnight, Bitcoin’s mining difficulty has risen by nearly 5.56 percent, hitting a lifetime high of 30 trillion (Bitcoin mining difficulty is measured on a scale of 1 to infinity).
Bitcoin mining refers to the process of verifying and adding a new block (set) of transactions to the blockchain. Network users that participate in the mining process (known as validators or miners) receive a certain number of bitcoins for every block of transactions they successfully verify and add to the blockchain.
To maintain a steady flow of blocks being added to the blockchain, the Bitcoin network has an automatic system that adjusts the mining difficulty based on how many validators are participating in the mining process. This system ensures that it takes roughly 10 minutes to verify and add one new block of transactions.
Without the system, validators would be able to verify and add blocks very quickly and easily. This would result in more bitcoins entering circulation, and the hard cap of 21 million coins would be reached way ahead of its estimated year of 2140.
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But what is mining difficulty, how does it work, and why does it matter? Let’s find out.
Bitcoin mining difficulty, how it works and why is it important?
Bitcoin mining is a decentralized process that confirms the transaction on the blockchain and issues newly minted bitcoin to validators for each block of transactions added. It is the process by which new bitcoins enter into circulation. Here’s a quick snapshot of how mining works:
1. Miners (read as computers) verify the validity of transactions by performing complex calculations and solving challenging puzzles. This verification process requires a huge amount of power and therefore dissuades bad actors from flooding the system with bogus transactions.
2. It’s like a lottery system where the first miner to solve the puzzles is chosen to verify a block of transactions and, in return, receives newly minted bitcoins as a reward.
As new processing chips enter the market, miners are able to complete the puzzles required to mine bitcoin much faster. Moreover, with more and more miners entering the fray, blocks can be mined very quickly, thereby hindering the preconceived plan to hit the circulation hard cap of 21 million coins in 2140.
Keeping this in mind, the mining difficulty changes every two weeks or 2,016 blocks. The difficulty level of the next cycle depends on how successful miners were in the preceding cycle. It is also affected by the number of new miners joining the network.
If miners are able to solve the puzzle in less than 10 minutes or the number of miners on the network has increased, the mining difficulty also increases. However, if the number of miners on the network reduces, or the time taken to verify one block exceeds 10 minutes, then the mining difficulty will reduce.
With the current mining difficulty, the chances of a miner solving the puzzle are 1 in 30 trillion. This might seem like a very slender margin but winning the Powerball Jackpot with a single lottery ticket is nearly 1 lakh times more unlikely than solving the puzzle correctly. Moreover, with the powerful processing chips available today, miners are able to attempt millions and millions of puzzles within just 10 minutes.
