There are many “noob-friendly” definitions of Bitcoin mining difficulty, but I didn’t find one that’s as easy and simple as it should be:
In the scope of this website, the Bitcoin mining difficulty is a measure of how hard it is to mine 1 Bitcoin, or in recent years- how hard it is to mine a portion of Bitcoin.
Bitcoin mining difficulty explained
Now that you’ve learned what this difficulty is, let’s take a look at some of its properties:
- It’s not a constant but a variable. This means that the mining difficulty for Bitcoin isn’t fixed- it changes with time, and the time is usually around 2 weeks. Blockchain technology works by adding new blocks to the existing system. And in the case of Bitcoin, it takes around 10 minutes to mine a block(add it to the blockchain). Every time the new 2016 blocks are added to the blockchain(which roughly takes around 2 weeks), the difficulty gets updated.
- Mining difficulty is correlated with the number of miners, or more precisely their hash power. We already said that the mining difficulty updates over time. And it can go both up and down. This is because mining difficulty depends on the hashing power utilized to mine Bitcoin on the network. In other words, higher hashing power means higher difficulty- making it harder to mine 1 BTC. But also, lower hashing power means lower difficulty- making it easier to mine 1 BTC.
- Mathematically speaking, only the hash power correlates with the mining difficulty, as that’s how the Bitcoin software was written. But in practice, the mining difficulty also correlates with the price. When the price goes down, some miners lose their interest, thus the difficulty goes down as well. When the price goes up, more miners have an incentive to mine, so the difficulty goes up again.
Bitcoin mining difficulty chart
If you’re more of a visual guy, these charts may convince you instead. It’s basically a screenshot from here.
Once you get a grasp of this Bitcoin rule, you’ll be able to consider it while running your mining operation.
For example, when the price is down not everything is lost- when the difficulty goes down as well, you’ll earn more of that coin, plus you can hold and sell it when the price rise again.
If the difficulty starts increasing rapidly, it may signal that price will do the same. So even if you don’t mine, you may benefit from the mining difficulty as a trading strategy.
It updates every two weeks, so you have enough time to analyze it and draw your conclusions.
I personally like it the most when it’s down, as that’s when I make the most of the coin I mine.
Selling that coin is another story, and you should ideally do it when the difficulty is high.