The Bitcoin protocol has experienced a reduction in mining difficulty due to China’s crackdown on bitcoin mining and the cascade that followed.
On-chain data shows the network’s mining difficulty adjusted to 21.64 trillion, the lowest it’s been since mid-March, which represents a 16% drop. The latest all-time high (ATH) was 25.04 trillion in May, which was the strongest move upwards since October 2017.
On May 21, China’s State Council published a document wherein it stipulates it will be “cracking down on bitcoin mining and trading activities” in order to “prevent possible financial risks”.
In the hours following the announcement, the exchange tokens of Huobi, OKEx and Binance, which are mainly China-based crypto trading exchanges, fell by 17%, 19% and 10%, respectively. During this time the Huobi Mining Pool hashrate also took a steep 29% slide.
What Affects The Hashrate
In the same week as the State Council’s announcement, bitcoin miners in Sichuan faced a cap due to increased public power usage. In order to free up electricity for the public, the Sichuan government allows businesses to use the excess hydro-power generated, making it appealing to miners.
At a meeting scheduled this week in Chengdu, the capital city of Sichuan, regulators will discuss the effects of bitcoin mining on the province’s hydro-electricity excess.
Due to regulatory uncertainty, Chinese miners are looking to pack up and ship out or at the very least sell their mining rigs. The silver lining is that if China were to ban crypto, it would no longer hold the majority of nodes securing the network.
Impact of the Hashrate
Hash power represents the combined computational power required to mine and process transactions on the blockchain. Higher hashrate means more resources are being devoted to process transactions, making a network more resilient to attacks.
Bitcoin’s mining difficulty is designed to adjust itself every 2,016 blocks based on average block production intervals throughout the period. There are also scheduled difficulty changes in order to keep block creation at around one block every 10 minutes. The more difficult it is to mine, the more hashes will need to be generated to find the block rewards, pushing the total hashrate higher.
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