Despite the fluctuations in Bitcoin’s price, its hashrate continues to climb. A rising hashrate — which is the amount of computing power involved in the process of securing Bitcoin transactions — could have a significant impact on the mining industry that’s creating that rise.
Here's a quick review of how Bitcoin mining works. Miners race to solve difficult calculations in an effort to produce new Bitcoin. In order to ensure that Bitcoin can reliably generate a block every 10 minutes, it is necessary to continuously adjust the difficulty of the calculations. As more computing power is devoted to mining, the calculations become more difficult. If the hashrate (mining power) is increasing and Bitcoin’s difficulty is not adjusted in time, blocks may be generated faster and faster. Therefore, the Bitcoin network makes regular difficulty adjustments based on the changing hashrate.
At present, mining pools dominated by the Chinese still have an advantage over American and European rivals. Chinese miners not only control the majority of hashrate, they often are able to operate with much lower electricity costs.
On January 15, Bitcoin’s difficulty was adjusted upward by roughly 7%, mainly because of the recent increase in hashrate. That’s the second difficulty hike so far this month — January 2 saw a 6.6% rise in difficulty, as well. Since the second half of 2019,the rising hashrate has been met with a corresponding rise in difficulty (with the exception of November 18, 2019, when difficulty was briefly reduced by about 7.1%).
The increase in computing power (hashrate) means that miners have invested heavily in Bitcoin mining. But the increasing difficulty means that competition has become more fierce, making it harder for miners to succeed.
But are Bitcoin difficulty adjustments affecting other cryptocurrencies too? On the eve of the January 15 difficulty adjustment, the price of Bitcoin SV suddenly began to soar sharply.
Bitcoin SV was born out of a 2018 hard fork of Bitcoin Cash. Its 2020 performance has thus far been impressive — there was a smaller rise on January 10, and then beginning on January 14 it shot upward, rising roughly 150% in 24 hours.
As of January 15, the price of Bitcoin SV has fallen from a peak of well over US$400 to roughly US$320. That puts it neck-and-neck with rival Bitcoin fork Bitcoin Cash (currently worth $342), and up about $200 compared to where it was a week ago. Bitcoin SV’s sharp rise has turned a lot of mining attention away from Bitcoin and towards its blockchain.
Of course, Bitcoin SV’s difficulty has also seen a dramatic adjustment over the past two days, corresponding with its massive price spike and the increasing mining power being brought to bear on its network:
The adjustment of Bitcoin’s hashrate occurred at 7:42 (UTC + 8) on January 15. As is evident in the first chart above, Bitcoin SV’s difficulty has also been greatly adjusted over those two days.
There is no evidence that the soaring price of Bitcoin SV was directly related to Bitcoin’s difficulty adjustment. Most likely, the timing is just a coincidence. Bitcoin SV’s price surge is more likely is related to news about a case involving Bitcoin SV founder Craig Wright, who has declared that he is Satoshi Nakamoto.
Hashrate is very important for the security of digital currencies that rely on Proof of Work. Although the change in BSV’s hashrate will not necessarily have much impact on Bitcoin, it could pose a threat to Bitcoin Cash if the allure of a rising BSV pulls away some of BCH’s miners, reducing its hashrate.
It is also worth noting that with the current increase in the overall price, Bitmain's S9 mining machine can profitably mine BSV again. This frees up more miners to shift to Bitcoin SV since, based on the current difficulty as well as equipment and electricity costs, they would no longer be taking a loss.