The ban of China on Bitcoin mining caused the hash rate on the network to recover by approximately 85%. The increase in computing power comes, in part, from Chinese miners relocating to the United States.
Bitcoin is an asset that offers advantages like the decentralization of its production, contrasting to fiat money. Everyone knows that China is one of the most highly developed countries regarding cryptocurrency mining. However, the government of that Asian country slowed that growth through too strict regulations. For that reason, there has been an increase in the difficulty of mining BTC on the network.
As miners continue to locate their machines outside China, the Bitcoin network has seen a 13% increase. Much of the mining capacity, mainly as farms, migrated to North America while some went to Russia and Kazakhstan.
Mining Difficulty is a self-reference score that allows knowing how difficult it is to find the next block on the blockchain. The term self-reference means an internally measured unit that had a value of 1 at the beginning of Bitcoin and has grown exponentially.
Mining Difficulty Increases as the Number of Miners Grows
The mining difficulty on the Bitcoin network has grown from 13.7 T to 17.6 T since July. Therefore, the level of difficulty has increased by 13%, being the third consecutive positive adjustment.
The last two increases (7.3% and 6%, respectively) occurred after the Bitcoin hash rate increased by 28%. At that time, the computing power went from 97 exahashes (EH) to 126 EH.
After the ban in China, the Bitcoin hash rate has recovered by about 85%, showing the excessive volatility created by the restriction. The increase in hash rate comes from large North American miners, besides Chinese miners that have relocated.
The adjustment of Bitcoin mining difficulty occurs about every two weeks or every 2,016 blocks. The network increases or decreases it depending on the number of miners participating in the network. If more hash rate connects during those two-week periods, then the difficulty will adjust upwards. On the contrary, if miners disconnect their equipment and there is less competition, the level will decrease.
China’s Restriction on Bitcoin Mining Proves Profitable for Active Miners
Adjustments in the mining industry above 10% are substantial and will likely reduce profits as they move towards yearly highs. In April, Bitcoin reached its all-time high of USD 0.415 per terahash (TH), regarding mining difficulty.
Bitcoin mining was highly profitable for active miners after the Chinese government banned the activity in the country. For example, many miners connected in the United States made massive profits during the second quarter of this year.
Most mining company stocks trade more like Bitcoin proxies rather than depending on their finances. Therefore, there will hopefully not be a material change in their prices based on that adjustment.
That might be different if there were traditional proxies like ETFs more readily available in the United States. Although China restricted Bitcoin mining, it could not prevent miners from seeking to do business abroad.
By Alexander Salazar
