The Bitcoin mining difficulty is on the verge of being adjusted to a new record high, reflecting the continued increase in the number of mining machines competing to secure the network. The bi-weekly adjustment will see the mining difficulty rise from its current 49.55 trillion to 50.91 trillion, marking a jump of over 2.7%. This is fueled by an average block time of 9.73 minutes, a 0.27-minute deviation from Bitcoin protocol’s target of maintaining a block time around 10 minutes.
This surge in Bitcoin mining difficulty happens simultaneously with the continuous rally in the Bitcoin network’s hashrate. Data from Glassnode shows that the 14-day moving average mean daily hash rate hit a record high of around 366 exahashes per second (EH/s) on Monday.
A major factor driving the increased mining difficulty is the recent surge in Bitcoin network fees, resulting in boosted profitability for miners. The growth of fees is partly attributed to an explosion of activity on the Bitcoin blockchain related to the Ordinals protocol. Ordinals allows NFTs and BRC-20 tokens to be issued directly onto the Bitcoin blockchain, as well as enabling smart-contract-driven decentralized applications.
As Bitcoin seems to be transitioning into a smart chain, similar to Ethereum, the demand for inscriptions, counted as transactions, leads to increased demand for block space in the Bitcoin network. With the Ordinals protocol having only just launched at the end of last year, and the BRC-20 token standard introduced about two months ago, innovation and transaction numbers are likely to remain elevated for the foreseeable future.
This elevated transaction activity means that Bitcoin network fees will likely stay high, maintaining a strong incentive for more miners to join the network. However, the main uncertainty for miners is next year’s halving event, in which the block reward will be reduced from 6.25 BTC to 3.125 BTC. This may act as a deterrent for new miners, as fear of reduced rewards could make mining efforts unprofitable.
Looking at historical trends, the Bitcoin price has performed exceptionally well in the lead-up to and immediately following halving events, often compensating for the reduced block rewards. Time will tell if this trend holds true for the upcoming halving and whether the incentives to mine will remain strong amidst elevated network fees and unpredictable market dynamics.
Source: Cryptonews
