Blockchain difficulty
Dwain Ross
07 / May / 21
Visitors: 210
The profitability of Bitcoin blockchain mining largely depends on the current difficulty of Bitcoin generation. In this article, we will try to understand what the difficulty of calculations depends on and why it is becoming increasingly difficult to extract bitcoins over time.
One of the basic ideas for creating a digital currency Bitcoin is to ensure the stability of the system. Considering the fact that the system is decentralized (there is no regulator), stability is achieved by algorithms which ensure its functioning. As for any currency, it is important for Bitcoin that the number of coins in circulation is maintained at an optimal level. The additional cryptonyms are emitted by the users of the system themselves - miners carry out blockchain calculations aimed at confirming transactions and receive bitcoins as compensation.
In order to illustrate the increasing blockchain difficulty, we can go over how mining has changed in just a few years. The creator of the digital currency (Satoshi Nakamoto) has "personally" mined some number of crypto coins, which was necessary for forming the Bitcoin turnover (about 2 million coins) using their own computer. Then, the period of mass mining came about as the rate of the crypto currency began to grow - no special mining equipment was required. The difficulty was low; the usual computer was enough and the miners did mining at home.
Over time, the mining difficulty in the Bitcoin network increased, enthusiasts began to buy powerful video cards capable of providing the required performance. The first "farms" from several video cards were already assembled at homes or in garages; miners already were on the verge of profitability. Then, mining became a kind of business and this business required investments. Video cards could not provide the required performance, the hardware manufacturers offered special chips (ASIC) designed exclusively for mining. These chips were expensive enough but they consumed less power than video cards, generated less heat during work and, most importantly, they were very productive.
Thus, the community of miners divided into those who can and want to invest and those who want to mine crypto but do not have the resources to do so. The first began to create farms connecting more and more ASIC, the second began to unite in pools and mine bitcoins together. Accordingly, various services were created that received profit by servicing miners - from the equipment manufacturers to the data centers that offered their rental capacities.
How the difficulty of Bitcoin mining grows
So, the Bitcoin network algorithms assume the possibility of closing one block in 10 minutes (average time of the hash). The difficulty is recalculated after every 2,016 blocks are found (which takes about two weeks). And if the overall mining speed increases (hashes are selected more often than they should), the blockchain difficulty increases.
In addition, the system recalculates the amount of compensation for each unit. Namely, the number of bitcoins per block is split in half when the total number of mined bitcoins is doubled. So, the compensation for a found block was 50 BTC from 2009 to 2014, then this figure decreased to 25 BTC. In total, \ miners (according to the plan of the system founders) will have to mine about 21 million bitcoins; when 75% of this amount will be mined, the reward will be halved again. After all the bitcoins are mined, miners will receive a commission for verified and confirmed transactions within the system. Accordingly, when mining difficulty increases, miners need to increase their computing power so that the statistical expectation of hashes remains at the same level. In turn, reducing the amount of compensation will reduce profits pushing many miners beyond profitability.
