Bitcoin Mining Difficulty Set to Plummet Following China’s Crackdown

By Liam Frost

The difficulty of Bitcoin mining is slated to drop by a hefty 27% following the massive exodus of Chinese mining pools, according to the Bitcoin Difficulty Estimator.

As the name suggests, Bitcoin’s mining difficulty is the overall complexity of computations required to produce one new block every 10 minutes—as the blockchain was initially designed to do by Bitcoin’s creator Satoshi Nakamoto.

But since the Bitcoin blockchain’s hash rate—the total computing power of the network—can significantly fluctuate, the mining difficulty automatically adjusts (“retargets”) itself every 2,016 blocks—or roughly once per two weeks. This is because when new mining systems are added to the network, blocks can be produced faster than initially intended—and the difficulty rises to compensate for that.

On this occasion, however, mining systems are being removed from play on a large scale.

China’s Bitcoin mining crackdown

The decline in Bitcoin’s mining difficulty comes on the heels of a massive crackdown on Bitcoin mining in China.

Across Chinese provinces including Sichuan, Yunnan, and Qinghai, local miners have been forced to take their hardware offline. Simultaneously, China’s central bank prohibited payment platforms and banks from any cryptocurrency activities. As well as sparking a significant decrease in crypto prices across the board, China’s actions also catalyzed a sudden collapse of Bitcoin’s hash rate.

China’s 2021 Bitcoin Crackdown: What You Need to Know

And this is all while China accounted for around 65% of the Bitcoin network’s hash rate, according to some estimations. As a result, production of new Bitcoin blocks dropped down to one per 20 minutes or even slower, data from block explorer Blockchain.com shows. In this light, the blockchain’s difficulty indeed required a significant “tune-up” to get the block times back on track.

However, even the upcoming 27% drop may not be the final one yet, according to Roman Nekrasov, co-founder of industrial mining data center LAZM.

Bitcoin Hashrate Falls 17% Overnight After China Mining Crackdown

“The shutdown of Chinese data centers could cause more than one drop in the difficulty of the Bitcoin network,” Nekrasov told Decrypt. “The expected 27% drop tomorrow is not final. If the current hash rate does not change in the next two weeks, then the mining difficulty will drop by another 20% in mid-July.”

He explained that such a decrease may “slightly offset” the recent decline of Bitcoin’s price and help increase the revenue of other miners in terms of 1 terahash per day. On the other hand, drops in difficulty carry risks of additional downward pressure on the price of Bitcoin.

“In mid-July, we may see another wave of Bitcoin price correction, proportional to the increase in the coin output,” Nekrasov warned.