Bitcoin’s mining difficulty had dropped three consecutive times since September, following the bearish sentiment in the markets and the decreasing profit margins for mining. However, the difficulty target recently increased and bounced back to levels from earlier December.
The hash rate of the network also ticked up to 40,219,475,700 GH/s, also mirroring levels from early December. Several reports towards the end of 2018 indicated that Bitcoin miners had been shutting down following the market price drop of the legacy cryptocurrency throughout the last 3 months, but Bitcoin’s price has stabilized recently and is pushing the $4,000 mark today.
Difficulty Adjustment Working as Designed
Bitcoin’s target difficulty allows miners who remain mining on the chain during adverse price movements — when margins are low or negative — to win and propagate blocks more easily than when more miners are in the ecosystem. As such, the decreasing difficulty that recently bounced back up — along with the increased hash rate — indicates that miners who had previously shut down their rigs may be entering the ecosystem again to take advantage of the easy difficulty target.
If Bitcoin’s positive price momentum at the start of 2019 can hold, the difficulty target and hash rate of the network are likely to increase steadily.
Moreover, when analyzing Bitcoin’s hash rate and difficulty throughout 2018, the November to December period was the only significant decline in both, and the difficulty and hash rate both increased considerably from the start of the year.
Bitcoin’s overall hash rate is roughly three times more than at the same time in January 2018, and the difficulty is approximately 2.5 times more than in January 2018.
Looking Forward to 2019
The year 2018 was a volatile one for Bitcoin and the broader cryptocurrency ecosystem. With many altcoins failing and scaling issues abound, a general focus has shifted towards Bitcoin and how to build applications on top of its protocol layer and blossoming Lightning Network (LN).
Interestingly, the difficulty target — although not perfect and can have a delayed response — provides a unique gauge for the broader sentiment of the market but usually lags slightly behind as a real-time indicator. The next difficulty adjustment should provide a more definitive picture of Bitcoin’s mining sector, and if positive, could serve as a strong metric for a resurgence in the market.
With the difficulty adjusting up roughly 10 percent a few days ago, the next few months should provide a strong signal on whether Bitcoin’s mining ecosystem will continue to steadily increase as it did in 2018.