Bitcoin Mining Difficulty Hits Record High, Projected to Drop by 3% in August

The Bitcoin network mining difficulty reached an all-time high (ATH) of 127.6 trillion this week, representing increased competition for miners. The record may prove short-lived, however, as the difficulty is projected to decrease by around 3% to 123.7 trillion in the next adjustment on August 9, CoinWarz statistics indicate.

This change in difficulty is in quick alignment with the average block time at 10 minutes and 20 seconds, slightly higher than the protocol target of 10 minutes.

Why Mining Difficulty is Important

Mining difficulty determines how difficult it is for the miners to come up with a valid hash for the next Bitcoin block. It is reset every 2,016 blocks to ensure new blocks around every 10 minutes regardless of the network’s amount of computing power (hashrate).

A rising difficulty can strangle miner profitability, especially if Bitcoin’s price does not increase alongside. Conversely, a decline in difficulty gives miners temporary respite since rewards become easier to obtain with the same hardware.

Hashrate and Difficulty: A Balancing Act

Hashrate — i.e., aggregate computing power keeping the Bitcoin network secure — is strongly correlated with difficulty. When additional miners join, difficulty increases to maintain block time consistency. Difficulty decreases when miners leave in order to avoid production slowdown.

After its drop to 116.9 trillion in early July, the difficulty kept moving along in late July, consistent with rising hashrate levels.

Stock-to-Flow and Bitcoin’s Scarcity

The stock-to-flow ratio of Bitcoin lies at its core. Bitcoin, with 94% of all BTC having been mined, enjoys a stock-to-flow ratio of approximately 120, which is twice gold with its ratio of 60.

Scarcity through controlled issuance is the antidote to price volatility caused by oversupply. Difficulty adjustment mechanism ensures price inelasticity to production, a feature that makes Bitcoin structurally different from most commodities.

Conclusion

While the Bitcoin mining difficulty lately hit a record high, the projected August dip gives miners temporary respite. In the long term, the adjustment mechanism remains central to sustaining the fixed issuance schedule of Bitcoin, upholding its scarcity, and enhancing its store of value status as a deflationary digital currency.