As of the date of this writing, block 737,000, Bitcoin is nearly two-thirds into its 366th problem epoch. A problem epoch is a interval wherein 2,016 blocks are added to Bitcoin’s ledger, ideally in 20,160 minutes, or 14 days. If the epoch ends in much less time, the community adjusts the issue of efficiently mining a Bitcoin block upwards to regain a 10-minute block cadence, and vice versa. The total historical past of Bitcoin’s problem is proven within the graphic under (chances are you’ll want to zoom in — it’s fairly an enormous graphic).Figure one: Historical Difficulty Changes Since Inception
Figure one: Historical Difficulty Changes Since Inception
In whole, 15 epochs, round 4% of all epochs, skilled no problem change. These simply so occurred to be the very first 15 epochs the place mainly simply Satoshi Nakamoto, Hal Finney and some dozen different individuals had been mining. Of the remaining 351 epochs, 283 (77.5% of all epochs) would see a problem enhance, with 67 epochs seeing a problem lower. We will delve into these intervals of lower later on this piece.
Toward the tip of 2009, Nakamoto made a plea to the grasping, opportunistic Bitcoiner group to not mine with their GPUs. And I quote, “We should have a gentleman’s agreement to postpone the GPU arms race as long as we can for the good of the network. It’s much easer [sic] to get new users up to speed if they don’t have to worry about GPU drivers and compatibility. It’s nice how anyone with just a CPU can compete fairly equally right now.”
Bitcoiners being the grasping opportunists that they are (this, by the way in which, is nice for Bitcoin, because it drives all innovation) broke this gentleman’s settlement, and the GPU mining period would begin, and finally, so too the ASIC mining period, however extra on that later.
Figure two: Difficulty Vs. Price, Log-Log Scale, 2009. Here we see that Bitcoin doesn’t also have a market worth, and problem is steady for all the 12 months, save for one giant leap on the graduation of the GPU mining period at 12 months’s finish.
In 2009, the typical problem enhance was 0.966%, with a typical deviation of three.865%. Obviously, since bitcoin didn’t have a market worth in 2009, profitability calculations are moot, however for those who didn’t add any CPU or GPU energy, for the 12 months, for those who had been incomes 1 BTC firstly of the 12 months, you’d earn 14.39% much less, or round 0.8561 BTC, by the tip. Obviously, this assumes the miner has 100% absolute uptime, and doesn’t lose revenue thusly (extremely unlikely, however let’s be beneficiant!).
2010 To 2013: The GPU Mining Era
Summary Difficulty Statistics: 2010 to 2013
2010
In 2010, we witnessed bitcoin purchase a market worth for the primary time in its historical past, in addition to its first exponential “price rip” upwards. Aside from one problem drop in May (earlier than Bitcoin had a market worth), we noticed 32 problem will increase with a mean of twenty-two.85%, and a typical deviation of 15.54%. If you had been incomes 1 BTC per hashing unit on January 1 of that 12 months, and didn’t spend any more cash on further GPUs, by December 31 you had been incomes 99.98% much less, or about 19,178 sats as an alternative of a complete coin. Rough.
Figure three: Difficulty Vs. Price, Log-Log Scale, 2010
2011
2011 wasn’t significantly better for the miners than 2010, the place for those who had been incomes 1 BTC per hashing unit firstly of the 12 months with out including to your GPU fleet, you’d be incomes 97.81% much less, or about 2.19 million sats — technically over 100 instances higher off than you had been in 2010, a minimum of!
2011 noticed bitcoin’s first mega-pump, with worth rising about 100 instances from $0.30 to $30 within the first six months of the 12 months, earlier than taking a 93.3% bathtub again down to $2 by November. One problem drop was skilled through the 50% worth drop between February and April, with the opposite eight drops for the 12 months occurring throughout “bath time.” There had been 21 will increase all year long. The common problem adjustment was 11.96%, with a typical deviation of 16.96%.
Figure 4: Difficulty Vs. Price, Log-Log Scale, 2011
2012
2012 was an fascinating 12 months, because it was the primary time that the trade would ever expertise going by a block reward halving. While you could possibly fetch round $7 for a bitcoin in early January, a Valentine’s Day bloodbath practically halved the worth, and worth was constantly down 30% to 35% from the January excessive till the center of the 12 months. This resulted in 5 problem drops in that six-month interval. A doubling in worth from June to August noticed wholesome problem will increase once more, with no drops in problem to be witnessed till “The Halving” in late November, which noticed two consecutive problem drops to finish the 12 months.
There had been 20 will increase all year long, and 7 drops, with the typical problem adjustment being a rise of three.26%, with a typical deviation of plus 6.04%. You can be incomes 59.11% much less on December 31 for those who hadn’t invested in any new {hardware} for the 12 months. Not too unhealthy in contrast to earlier years.
Figure 5: Difficulty Vs. Price, Log-Log Scale, 2012
2013
Aside from a 9.46% drop in problem in late January, 2013 can be an “up only” 12 months thanks to two mega-pumps, the primary a near-20-timeser, going from $13.22 firstly of the 12 months to $229.47 on April 9, and a 17-bagger from early July till early December. Alongside the solitary problem drop to begin the 12 months, there have been 30 constructive changes, averaging 17.16% with a typical deviation of plus 8.34%. Similar to 2010, your 1 BTC of earnings on January 1 decreased to 292,156 sats for those who didn’t add any GPUs to your farm, a 99.71% drop. However, as of the tip of 2013, no person can be including any GPUs to their farms (other than shitcoin miners after all!), because the age of the ASIC was now upon us.
Figure six: Difficulty Vs. Price, Log-Log Scale, 2013
2014 To 2020: The ASIC Mining Era
Summary Difficulty Statistics: 2014 to 2019
2014
Despite the collapse of Mt. Gox beginning the longest bear market within the historical past of Bitcoin, with the excessive watermark of $1,134.39 not to be handed once more for the ultimate time till April 2017 — a full 1,218 days later (belief me, as a November 2013 first-time purchaser, I lived it and was counting the times!). 2014 was one more seemingly “up only” 12 months for problem, with 28 will increase, and two small decreases of 0.73% and 1.39% to spherical out the 12 months. The common problem change was plus 10.9% with a typical deviation of plus 6.57%. If you didn’t add any ASICs to your farm in 2014, your 1 BTC of incomes energy was slashed by 96.86% to 3.14 million sats.
Figure seven: Difficulty Vs. Price, Log-Log Scale, 2014
2015
Even with Mt. Gox being lifeless for nearly two years, the “Goxxings” simply appeared to hold coming, with worth bouncing between $300 and $150 for a lot of the 12 months, with all 5 of the issue drops occuring in 2015 coinciding with sharp 30% to 50% drops in worth over a short while interval. ASIC producers had been nonetheless feeling out the area and perfecting their artwork, as proven within the graphic under from the Cambridge University SHA256 technology tracker. This meant that the typical problem change for 2015 was solely plus 3.31% with a typical deviation of plus 4.62%. Still, for those who didn’t add any rigs to your farm, your 1 BTC of earnings on January 1 was lower by nearly 60% to 0.403 BTC.
Figure eight:. Source: Cambridge University SHA-256 State of Technology Tracker
Figure 9: Difficulty Vs. Price, Log-Log Scale, 2015
2016
2016 was one of the vital particular years in mining historical past, because it witnessed a halving in addition to the discharge of the AK-47 of mining rigs, the Antminer S9, which might take pleasure in worthwhile service for six years up till the very current main worth drop witnessed in May 2022.
Price development for the 12 months was sluggish, save for the previous couple of months which noticed substantial development, and the goxxings would nonetheless proceed throughout 2016 regardless of the alternate collapsing greater than two years prior. All of this is able to end in 22 problem will increase, and 5 drops, three of which occurred prior to the halving.
The common change was plus 3.93% with commonplace deviation of plus 4.93%, leading to a discount of BTC revenue of 47.36% for the 12 months.
Figure 10: Difficulty Vs. Price, Log-Log Scale, 2016
2017
2017 noticed two main occasions, a 20-times run up in worth all year long, and the decision of “the blocksize war” towards the very finish of the 12 months. I clearly can’t do justice to the blocksize warfare in a single paragraph, so I’ll quote the blurb of Jonathan Bier’s seminal March 2021 ebook “The Blocksize War: The Battle Over Who Controls Bitcoin’s Protocol Rules”:
“[The Blocksize War] was about the amount of data allowed in each Bitcoin block, however it exposed much deeper issues, such as who controls Bitcoin’s protocol rules.”
The final decision was the creation of a brand new fork of Bitcoin, referred to as Bitcoin Cash (BCH), which may be mined utilizing the SHA-256 protocol. Huge will increase within the worth of BCH towards the tip of the 12 months had been sufficient to coax miners away from mining the Bitcoin community and mine on the BCH community on three events after its launch in August, with a small drop in July taking the tally to 4 downward changes for the 12 months.
There had been nonetheless 23 will increase for the 12 months nonetheless, and with a mean change of plus 6.16% with commonplace deviation of plus 6.15%, these adjustments resulted in a discount of revenue of 82.06% for the 12 months. More mining rig producers would enter the sport this 12 months, however no dramatic enhancements in rig effectivity had been achieved.
Figure 11: Difficulty Vs. Price, Log-Log Scale, 2017
2018
2018 noticed way more competitors within the ASIC {hardware} area, with rig effectivity nearly doubling. Rigs had been changing into so environment friendly, having an 80% drawdown in worth over the 12 months did little to cease hash price development.
There was a mean change of plus 3.59% with commonplace deviation of plus 7.31%, throughout 23 problem will increase, a drop in July when bitcoin’s worth was at about $6,000, and 4 drops which occurred through the last worth capitulation from about $6,000 to about $3,000 late within the 12 months. The finish end result was a discount of revenue of 64.09% for the 12 months in contrast to your start-of-year earnings.
Figure 12: Difficulty Vs. Price, Log-Log Scale, 2018
2019
After the brutal bear market of 2018, merchants noticed a reduction rally that took the worth from $4,000 firstly of the 12 months to about $13,000 mid-year. Aside from 5 minor damaging problem changes of lower than 1% within the first half of the 12 months, and two drops within the second half of the 12 months when bitcoin would return to a worth of $6,000, there have been 19 will increase. The common change of plus 3.06% with a typical deviation of plus 4.49% resulted in a discount of revenue of 55.42% for the 12 months.
This was primarily pushed by much more competitors and effectivity beneficial properties within the ASIC {hardware} market as opposed to chasing price-cost arbitrage, with the 2019 fleet of recent rigs being greater than twice as environment friendly as their 2017 friends. 2019 was additionally the primary 12 months we noticed modular mining strategies at giant scale, the place miners would basically flip delivery containers into transportable ASIC farms, and easily ship them to the world’s least expensive energy sources. The giant drop in problem in late October was extra doubtless from Chinese miners bodily migrating to cheaper hydroelectric energy sources due to the moist season, than a miner capitulation over a small drop in worth. This would develop into much more obvious within the migrations of 2020.
Figure 13: Difficulty Vs. Price, Log-Log Scale, 2019
Summary Difficulty Statistics: January 1, 2020 to May 10, 2022
2020
The most problem drops in Bitcoin historical past would occur in 2020, with 11 drops, a few of previously-unseen magnitudes, occurring all year long, for various causes. Despite the “COVID-19 everything crash of March 2020,” the substantial hash price drops witnessed in April and late October would principally be the results of Chinese miners bodily migrating from Xinjiang province (which is coal heavy) to Sichuan province (which is hydro heavy) through the moist season, after which again on the conclusion of the moist season. The revenue on provide was so nice because of less expensive energy that it was price it for miners to merely pack up, transfer and set up themselves elsewhere, regardless of the related danger and downtime. Of course, the halving of May 2020 would end in two consecutive drops of 6.39% and 10.24%.
Mining strategies and rigs would proceed to enhance, with firmware service suppliers like Braiins.OS offering miners with software program that dramatically elevated the effectivity of their rigs and was straightforward sufficient to use by mining fans. Immersion-cooled mining would additionally begin being utilized by numerous operations as a approach to additional enhance effectivity and cut back downtime and upkeep prices.
The common change of plus 1.06% with commonplace deviation of plus 7.74% resulted in a discount of bitcoin-denominated revenue by 24.91% for the 12 months. Considering that the worth of bitcoin would develop by 4 instances in 2020 nonetheless, this is able to begin a time frame the place residence and collocated mining began to look extra interesting to a far wider person base due to the seemingly irresistible cost-price arbitrage on provide in a booming market, seemingly shielded from competitors, a minimum of quickly, due to the COVID-induced world provide chain points afflicting the market.
Figure 14: Difficulty Vs. Price, Log-Log Scale, 2020
2021 To Current: China Bans Bitcoin And The (Near) Instant Recovery
2021
2021 was the 12 months mining “hit the streets,” with colocation corporations booming regardless of lengthy lead instances for supply, {hardware} costs had been going by the roof (in close to lockstep with the worth). Mining corporations had been nonetheless migrating for the most cost effective energy. They had been going public at a price of knots, and company treasuries had been collateralizing their bitcoin in fascinating methods. Just among the mania you’d anticipate to see throughout a meteoric bull run. To high all of it off, there was an enormous blackout in China which induced a close to 15% damaging problem change, then, solely a month later China completely banned Bitcoin mining, inflicting 4 consecutive damaging problem adjustments of 19%, 5.6%, 38.8% and 5%. This meant that anybody who was already mining noticed an enormous momentary bump in earnings, and can be forgiven for considering, “Whoever isn’t considering getting into mining right now would be stupid!”
But for those who’ve stayed with me up till this level, you know the way this story ends. Good instances are brief, and are all the time adopted by cripplingly onerous instances for miners. These instances would come quickly. Those saying the Chinese hash price wouldn’t return for months or years had been promoting probably the most picks and shovels, however return it did, principally inside three months, and all of it by the tip of the 12 months.
There had been 19 will increase, and 7 drops — 5 of which had been associated to China, the opposite two small and inside tolerance. The fascinating statistic to have a look at is the usual deviation, and whereas problem averaged a change of plus 0.5%, its commonplace deviation was 10.9%. So, for those who had been within the recreation firstly of the 12 months, you carried out stellarly, and solely had your revenue decreased by 12.33% for the 12 months. However, for those who had been one of many unfortunate ones who began in late July 2021 (or later), you had 12 adjustments for the remainder of the 12 months (11 of which had been constructive), and a mean of plus 4.61%, that means you’d misplaced about 77% of your revenue by the tip of the 12 months, with the bitcoin worth going south, rapidly. Again, for those who had been already established, 2021 was a incredible 12 months. For everybody else, shopping for bitcoin would have been the wiser possibility.
Figure 15: Difficulty vs. Price, Log-Log Scale, 2021
2022
We are 10 problem adjustments into 2022 — seven will increase and three drops. Despite a 20% crash in worth because the final problem change, it is predicted that the upcoming difficulty change will be a drop of around 1%. Of the ten adjustments to date, the typical change was plus 2.44% with a typical deviation of plus 3.39%, leading to a discount of revenue of 21.89% 12 months to date, however I predict it is going to be a discount of fifty% by 12 months finish. Home miners beware!
Most apparently, 2022 noticed Intel enter the mining recreation, forming a large partnership with green miner GRIID, and phrase that even oil-and-gas giants Exxon Mobil and Conoco Philips had started flare mining utilizing cellular, containerized mining options. Even with bitcoin’s worth being within the doldrums, competitors has been getting stiffer and stiffer.
2022 has seen extra COVID-19 provide chain points clearing, extra innovation in mining firmware and strategies and, with what seems to be to be one more protracted bear marketplace for worth, will see a flushing out of over-leveraged or low-margin miners, as we now have witnessed in earlier bear markets.
Figure 16: Difficulty Vs. Price, Log-Log Scale, 2022 to Date
Conclusion: Bitcoin Mining Is Perfectly Competitive
The nature of competitors in Bitcoin mining is close to good which implies miners will work extraordinarily onerous to have probably the most environment friendly operation, and certainly, probably the most environment friendly provide chain. It additionally implies that they are prepared and in a position to bodily go wherever is required to obtain this. Mining is not straightforward, and for a house miner, is akin to panning for gold in 2022 — it sounds much more glamorous and rewarding than it really is! There are higher methods to pique your curiosity about mining than spending cash attempting it out your self (learn: going brief spot-Bitcoin in hopes you’ll earn extra by mining versus going lengthy spot-BTC) — however you’ll by no means hear this from the individuals promoting picks and shovels!
Bitcoin mining has been in a position to take in most of my time and mental capability for eight years, but I’ve by no means even turned on a miner in my life. When it comes to mining, it’s finest to depart the bread to the baker, as they are most able to figuring out, assuming and managing the dangers. The historical past speaks for itself: When it comes to hash price and problem, “number go up” more durable, sooner and extra constantly than worth, and whereas this is nice for Bitcoin, it is horrible for these wanting to compete in what is a superbly aggressive area.
This is a visitor publish by Hass McCook. Opinions expressed are solely their personal and don’t essentially mirror these of BTC Inc or Bitcoin Magazine.
