With ambitions to create its own digital currency and adopt a more environmentally friendly policy posture, the Chinese government decided to ban bitcoin mining activity within the country this past spring. And while that’s hurt bitcoin miners in China, the global ripple effect has been more mixed.
Following the move by China, the Bitcoin network lost over half of its computing power, leaving miners elsewhere around the world to perform the calculations needed to create new bitcoin. With fewer people and less computing power devoted to the task, more time was needed to verify transactions and mint more of the cryptocurrency.
“[T]he bitcoin algorithm self-corrected for this deviation from the norm, and in July, the network saw a totally unprecedented 28% drop in the difficulty level [in solving blocks of bitcoin],” CNBC said in a recent report.
Generating bitcoin requires miners to solve blocks of equations, with the difficulty being reset at the end of every 2016-block or roughly two-week period, the news outlet explained. With the July downgrade in difficulty, mining new bitcoin became suddenly easier, allowing the world’s collective mining capacity to go through a block of transactions in 10 minutes on average.
During that “easy mode” window, a lot of miners suddenly found themselves much richer than before. But that opportunity is starting to close: on early Friday morning, CNBC reported, the Bitcoin code rebalanced such that solving a block became around 7.3% more difficult, which was among the more sizable jumps in difficulty in the cryptocurrency’s history.
Bitcoin mining is still comparatively less challenging for long-time miners. “Hashrate levels are still down 42.1% from the peak in May 2021 when the China exodus happened,” Jason Deane, an analyst at crypto advisory firm Quantum Economics, told the news outlet. “Assuming your energy cost and hashrate remain unchanged, the calculation really is as simple as it first appears.”
As each Bitcoin block once again becomes tougher to crack, the arms race between equation complexity and crypto computing power is set to resume. Fleets of machines, originally owned by China-based miners who can’t operate anywhere else, are being bought and imported by others looking to increase their capacity.
“There’s been a flurry of activity in the selling of these machines across the globe,” crypto miner Alejandro de la Torre told CNBC.
The mass purging of Chinese miners has also opened up room for newer mining rigs from some of the world’s biggest manufacturers like Bitmain and Whatsminer. Citing Mike Colyer, CEO of the digital currency company Foundry, CNBC said the newer machines can generate roughly twice the hashpower older models can for the same amount of electricity.
“Newer machines have considerably higher hashrate than their predecessors so we will likely see hashrate continue to move back to a new all-time high sometime in the next 12 months,” Whit Gibbs, CEO and founder of bitcoin mining service company Compass, told the news outlet.