The mining difficulty reached a new all-time high and while this is a good thing in the long run, it burdens some of the miners. What is the mining difficulty why has it reached a new all-time and how is it going to adjust?

The difficulty adjusts to the hashrate

If more miners are throwing more hashrate at the Bitcoin network, the difficulty rises. As the term suggests it gets more difficult to mine a new block and receive Bitcoin as a reward. Should more miners choose to leave the network, then the difficulty also adjusts and it will get easier to find a new block. This is an important mechanism for Bitcoin because it reassures that blocks are mined at a constant pace.

The adjustment is reevaluated by the network every two weeks on average. While the hashrate took a hit in December, the difficulty kept increasing until this day.

This situation is a burden for miners that are already struggling. In December 2022, Core Scientific had to declare bankruptcy and it is rumored that more companies could follow and cease their operations. With an increase in mining difficulty, these miners receive fewer rewards for the same hashrate that they are offering.

Is this a good or a bad thing?

It is bad for those who don’t have the means to increase their hashrate or to compensate for the decreasing revenue. Since the difficulty adjusts to the situation it is not as important as one might think it is.

Currently, the hashrate is still under the latest all-time high and the difficulty will only increase further if the hashrate is pushed up. Healthy companies are pricing these increases. If a mining farm is already at a point where a difficulty increase burdens its business model it usually failed a few steps before securing its business.

While this sounds harsh, the competition between miners is a feature and not a bug. This has also been widely criticized by environmentalists, who are concerned by the ongoing arms race that forces miners to constantly stock up their facilities or risk going out of business.