Bitcoin difficulty adjustment and its effect on the Bitcoin network

Bitcoin difficulty adjustment is almost here: Set to be one of the largest difficulty increases would undoubtedly have a huge effect on the network. Bitcoin difficulty adjustment Bitcoin difficulty adjustment is an event that occurs after every...

Bitcoin difficulty adjustment and its effect on the Bitcoin network

Bitcoin difficulty adjustment is almost here: Set to be one of the largest difficulty increases would undoubtedly have a huge effect on the network.

Bitcoin difficulty adjustment

Bitcoin difficulty adjustment is an event that occurs after every 2016 blocks mined based on the mining difficulty of the previous difficulty. The increase suggests that the previous difficulty was too low. Bitcoin difficulty is the number of hashes required to find a solution below a given threshold. Now the Bitcoin network would soon undergo one of its largest difficulty increase at the rate of almost 9 percent increase.

Reasons for Bitcoin difficulty adjustment

If the network’s difficulty is too low, the miners would overproduce coins and disturb the supply and demand equilibrium causing the price to fall. Similarly, if the difficulty is too high the miners would give up and the network would become unstable due to lack of computing power.

To counter this the network’s difficulty adjusts after a set period that enables it to function properly. After the upcoming adjustment, Bitcoin’s difficulty would be at 15 trillion, thrice of what it was in December 2018. This could be due to the decrease in difficulty by 7 percent during November.

An increase in difficulty suggests that mining on the network has continued to increase. This can be confirmed as Bitcoin’s hash rate achieved its all-time high in October 2019. The increase in the mining rate shows that the network has been gaining adoption steadily. When coins are mined the number of available coins decrease causing scarcity leading to greater asset price.

While the increased rate of mining could also be attributed to other factors such as improved mining rigs, and bigger mining pools, it is clear that Bitcoin adoption has been rising. While the adjustment might cause a bit of chaos for a short time, it would not have a long term effect on the price of Bitcoin.

Featured image by pixabay.

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