Last few weeks were little crazy in Crypto world. Several large events happened (one still going on). It looks like the difficulty will not change significantly this week, despite of what is happening in Kazakhstan.
Record network hash-rate recorder on New Years day
One of the reasons why the difficulty will not lower significantly is that the total network reached record hashrate of 220 Exahash on January 1st 2022.
We were hovering around 170-180 E/s before this happened, so this was a sudden increase of over 20% in hashrate. Something you do not want to really see as a miner. One of the theories behind this increase is that El Salvador deployed thousands of miners on New Years, although I have not seen any reliable source on that.
I think the reason behind this jump was that many mining and hosting companies did all they could do deploy as many miners as possible before the year ended in order to get to write these miners of their taxes still in 2021. Just Compass Mining alone deployed tens of machines on their own on December 31th based on their Discord Channel. And I imagine multiple companies did the same.
So what it meant for difficulty? Well before January 1st, based my favorite difficulty estimator, we were behind the projected number of mined block and the difficulty was projected to decline by around 2%. Suddenly when I woke up on January 1st, the projection was a slight increase in difficulty. Not the best thing to wake up at New Year Day.
This was however not the only thing that happened in the last few days.
Mining issues in Kazakhstan
I am not going to go into politics here, since I do not consider myself a political expert. The important information is that on January 5th, due to loss of internet connection in Kazakhstan, all the bitcoin mining in the country stopped. And supposedly Kazakhstan hosted around 20% of hashrate. A lot of the miners from China moved their operation there after the Chinese ban on mining.
Looking at Miningpoolstats, it really looks like multiple pools lost plenty of hashrate
What is however little weird from this screenshot is SlushPool. How come the pool lost plenty of hashrate exactly at the same time as other pools, but magically recovered it just one day later? And there is no sign of recovery with other pools at all. Where did all this hash suddenly come from? I would really like to learn more about what happened here, it’s a mystery to me.
Looking at the overall network hashrate though, I do not really see a really drastic decline as I would expect.
Yes, there is a drop on the 5th. But it is recovered right after. And the difficulty estimator kind of proves my point. Since January 5th, the pace of mining has not really slowed down, and we are expected to see somewhere around 0.5% increase in difficulty tomorrow.
I have been watching the difficulty estimator very closely every day. And it was between 0.3%-0.8% for most of the time after January 1st.
I know it has been only 2 days since the events in Kazakhstan. But if they really hosted 20% of total hashrate, I would expect the difficulty estimator to react much faster, the same way it did when the hashrate increased by 20% on New Years.
Bitcoin and Crypto Selloff
Well lastly, it it was not enough for first seven days of 2022, we also are going through a huge decline in Bitcoin and Crypto price. Just in the last 2 days, the price of Bitcoin declined from $47,000 to $41,000.
There can be several reasons for this selloff, like FED meeting minutes release, increase in interest rates or the before mentioned situation in Kazakhstan. I will not go into analyzing these reasons.
The important thing is that the profitability of mining declined significantly not only in the last few days, but in the last 2-3 months. I strongly believe that the difficulty will follow, and we will see a decline in difficulty, or just a very slight increase (around 0.5%) in 2 weeks from now again. I will take anything below 2% any time of the day. I still believe the price of Bitcoin will recover, so the more BTC I can mine before it does, the better.
Regarding the slushpool recovery, a possible explanation is that slush pool has a stratum2 implementation which could be easier to bypass the internet censorship.
Thanks for this insight! Yeah I guess that could be possible. It just feels weird seeing them as the only pool that recovered
The difficulty estimator you are using is really great, thanks for the link on that one: https://www.bitrawr.com/difficulty-estimator. Didn’t know it exists. The difficulty changed by 0.4% at the end, so good guess
Thanks for sharing your thoughts about hash rate.
Regards