Tough market conditions continue to affect the Bitcoin network as mining difficulty dropped by its biggest margin since July 2021.
A 7.32% adjustment occurred on Dec. 6 at block height 766,080, marking the sharpest drop in difficulty for over a year. This coincided with a decline in the average hash rate from 264.18 EH/s to 245.10 EH/s, according to data from BTC.com.
Bitcoin (BTC) mining difficulty measures how hard it is to mine a block. More difficulty requires additional computing power to verify transactions and mine new coins. Mining difficulty adjustment occurs every 2,016 blocks, or about every two weeks, as Bitcoin is programmed to self-adjust to maintain a target block time of 10 minutes.
The adjustment can be seen as a small reprieve for Bitcoin miners, who have endured a tumultuous 2022.
As previously reported by Cointelegraph, the third quarter of 2022 saw increased costs to produce new Bitcoin coinciding with a downward trend in the price since the turn of the year. Rising energy costs further impacted miner profit margins in the United States and Europe, leading some operations to shut down.
Bitcoin miners’ revenue fell to two-year lows at the end of November, exacerbated by poor cryptocurrency market performance and heavier computational demands. This eventually led to some mining operations’ capitulation and the recent drop in hash rates, which accounts for the latest difficulty adjustment.
Bitcoin mining analyst Jaran Mellerud shared his thoughts in a Twitter thread on Dec. 3, highlighting that the most recent drop in hashrate is most likely due increasing electricity prices:
“Many miners operate close to cash flow break-even and will be forced to turn off their machines if market conditions worsen.”
Mellerud also argued that significant increases in hash rate up until the second quarter of 2023 could be expected if the price of Bitcoin rises through the end of the year.