Bitcoin’s hashrate has fallen significantly from 146 exahashes a second to 113 with it to see one of the biggest difficulty adjustments ever.
After a sharp rise since May 2020, this sharp drop of some 23% is somewhat surprising, but there are a few explenation.
The simplest is that the rainy season in China has ended, thus the temporary period of cheap energy has ended with it.
Yearly, in remote parts of China even floods of mining farms are reported after heavy rains which fill the dams, with miners taking advantage of it by turning on old gear and/or by running at full capacity.
With that abundance over, miners have just adjusted, but the peak of this was in July, so this explanation does not fully fit in now three months on.
It could well be therefore that just too many turned on their gear in the hope of profit, and that brought under some who were already running their gear.
Bitcoin mining as you might know is a ruthless zero sum game where any new hash is at the expense of current hash.
The entire mining ecosystem was kind of running at full capacity with price working to their advantage as bitcoin nears $14,000, but managing the many factors is a complex and risky endeavor, hence this sharp fall from the carousel.
That can be the case this year in particular because of the halvening. As we’ve said previously, due to quarterly planning and much else, the effects of the halving were unlikely to be felt prior to three months in.
It has now been five months since bitcoin’s new supply was halved to 6.25 BTC from 12.5, meaning for some miners it is crunch time.
This year there are additional pressures because of new actors: state miners. Iran is an explicit case, but we suspect there are plenty others, and they are very different from previous miners.
While both industrial farms and hobbyist miners ultimately speculate on numbers going up in a time based game of sort, state miners don’t quite care about numbers in the same way.
They have a function to perform, and that’s buying or selling raw materials or bread through this medium of exchange. Rather than being in the business of hodling it or in the business of industrial mining where a bit of profit is all that matters, they are in the business of facilitating value exchange.
So the calculations of these state miners are different where the cost of mining is concerned, and therefore they can afford a higher bitcoin price because they don’t quite care about the price necessarily, they only care about moving $100.
That dollar one hundred remains $100 whether bitcoin is worth $10,000 or $100,000. It’s just a matter of moving some commas because as far as they’re concerned, it’s the same $100 going in, but different numbers of bitcoin coming out.
As far as industrial miners are concerned, they care about the bitcoin numbers because that is what gives them the dollars, instead of the other way around.
Therefore, the nature of bitcoin mining is about to change and maybe fundamentally with this generation to witness in real time through an algorithm the efficiency or lack of efficiency of the market and/or the state as well as their role and interaction in the overall complex goal based system of value setting and getting.