Bitcoin’s hash rate experienced a significant drop caused by China’s crackdown on cryptocurrency mining. The hashrate is the total processing power the network receives from miners. The past month has seen a nearly 50% decrease in mining hashrate. Any adjustment in the Bitcoin mining hashrate automatically changes the difficulty of mining at the end of Bitcoin’s 14 day, 2016 block mining cycle. This naturally recurring adjustment in the Bitcoin blockchain is coined the Bitcoin Difficulty Adjustment.
Above is a graph of the Bitcoin hashrate over the last 6 months, you can visually see one of the largest hashrate decreases Bitcoin has ever experienced. The sudden decrease significantly impacts Bitcoins transaction speeds and confirmation times. Daily blocks mined is perhaps the most concerning complication caused by this decrease.
The above graph shows a sudden decrease in daily transactions, possibly cause for concern. On June 26th there were 77 blocks mined, or 1 block every 18 minutes. Normally, a block is mined every 10 minutes, a total of 144 blocks per day. Due to a block size restriction, only 2759 transactions are included in each block. Normally the network can handle 4.6 tps (transactions per second), with fewer blocks being mined the tps has dropped to 2.6tps. The lower tps has resulted in higher fees along with significant network congestion.
Bitcoin is self-regulating, and the difficulty level for mining adjusts every 2016 blocks, which normally takes 14 days. Given the current circumstances, it now takes 25 days for 2016 blocks to be mined. The network automatically lowers the difficulty level of mining a block when it takes more than 14 days. BTC.com expects a difficulty adjustment on July 3rd for -24%, the largest change in difficulty ever.
While the Bitcoin network is currently under a significant amount of stress it is important to understand that this is temporary. Thanks to a lower mining difficulty coming into effect on July 3rd, the network will quickly adapt to the nearly 50% hashrate drop.
By Matthew Jessup