Bitcoin mining difficulty is set to reach a new record high, indicating a continuous increase in the number of mining machines competing to secure the network. Data from CoinWarz.com reveals that the BTC mining difficulty will be adjusted from its current level of 49.55 trillion to 50.91 trillion during the upcoming bi-weekly adjustment. This represents a significant 2.7% surge in the difficulty faced by individual miners in their quest to discover a Bitcoin block.
The surge in mining difficulty can be attributed to the current average block time of around 9.73 minutes, which is 0.27 minutes (or approximately 16.2 seconds) faster than the intended block time of 10 minutes set by the Bitcoin protocol. When the average observed block intervals are shorter or longer than the target time, the protocol adjusts the difficulty accordingly, either increasing or decreasing it.
In parallel with the increase in mining difficulty, the Bitcoin network’s overall computing power, known as hashrate, has also been on the rise. Glassnode, a crypto on-chain data analytics firm, reports that the 14-day moving average mean daily hash rate reached a record high of approximately 366 exahashes per second (EH/s) on Monday.
Factors Driving the Surge in Bitcoin Mining Difficulty
The recent surge in Bitcoin network fees has significantly boosted Bitcoin mining profitability. Miners not only receive newly issued BTC tokens for each mined block but also earn a share of the network fees. This fee surge, which has somewhat subsided in recent weeks but still remains high, is attributed to increased activity on the Bitcoin blockchain associated with the Ordinals protocol.
The Ordinals protocol, introduced towards the end of last year, allows inscriptions directly onto the Bitcoin base chain, offering added functionality to the blockchain. This innovation has enabled the issuance of NFTs and BRC-20 tokens directly on the Bitcoin blockchain, leading to the emergence of smart-contract-powered decentralized applications.
Bitcoin appears to be in the early stages of transitioning into a smart chain, similar to Ethereum, and the demand for inscriptions, counted as transactions, has consequently driven an increase in the demand for block space on the Bitcoin network. As a result, transaction numbers are likely to remain inflated beyond pre-Ordinals protocol levels for the foreseeable future, ensuring that Bitcoin network fees remain elevated. This creates a strong incentive for more miners to join the network.
No Signs of Slowdown Yet
Considering that the Ordinals protocol was only launched last year, and the BRC-20 token standard was introduced just two months ago, it is clear that inscription innovation on the Bitcoin blockchain is still in its early stages. Thus, transaction numbers are expected to remain high, and network fees are likely to stay elevated in the coming months.
While the upcoming halving, scheduled for next year, could potentially discourage new miners from entering the market due to the reduction in block rewards from 6.25 BTC to 3.125 BTC, historical trends suggest that the Bitcoin price tends to perform well both before and after halvings. This positive performance compensates for the reduction in block rewards and continues to attract miners to the network.
In conclusion, Bitcoin mining difficulty is set to reach a new record high, reflecting the growing competition among miners. The surge in difficulty is attributed to the faster average block time than the protocol’s target, while the increase in network fees and demand for block space can be attributed to the Ordinals protocol’s innovation. Despite concerns about the upcoming halving, the Bitcoin price’s historical performance indicates potential profitability for miners.