There has been a slight Bitcoin mining difficulty adjustment in the last 24 hours and analysts now reckon that BTC is just on the course of an epic rally. Eluding his confidence on Twitter, the analyst going by the name PlanB—a proponent of Stock to Flow Ratio, posted a screen grab of the drop in Bitcoin network’s difficulty.
Bitcoin Mining Difficulty: What It Is
So everytime when miners turn off the devices and bitcoin difficulty adjustment rate goes beyond -4% (blue dot)(lets call it a minor miner capitulation), price goes up if it is after an ATH.
I think that I am making progress here ,getting better at reading the charts ?
— Mr_KnowHow (@Mr_KnowHow) January 6, 2020
Bitcoin, the first network to use the proof of work consensus algorithm, is the most secure thanks to the economics behind its hash rate incentivization model. To ensure that Bitcoin blocks are generated every 10 minutes–keeping in check its inflation, the decentralized network adjusts its difficulty every now and then.
The mechanism regulates the time taken by miners to add new transactions into a new block ensuring that it is within 10 minutes. Simply, difficulty regulates how easy it is to find a block and add it to the longest, validated chain. This difficulty is adjusted every two weeks and is a function of the hash rate deployed on the network within that period of time.
“The Bitcoin Mining difficulty increases automatically every two weeks, in correspondence with the amount of computational power that is being used to mine. It increases in such a way that each transaction block (challenge) on average takes approximately 10 minutes to solve.”
Hash Rate at new All-time Highs
Notably, there has been a surge in hash rate in recent times. Bitcoin hash rate rose to a new all-time high conveying optimism from miners. That was also interpreted as a net positive for traders.
Bitcoin, considering the incentivization in place, is structured in such a way that hash rate follows price. As price momentum picks up, hash rate is expected to rise because not only is it profitable for miners but the break-even level significantly drops as price soar.
However, the more miners pour, the higher the mining difficulty and therefore, the harder it is for miners to get a block. Consequently, to be competitive and stay ahead of the curve, miners are required to either upgrade their gear or switch off since odds of striking a block is lower.