Bitcoin mining is the process of verifying bitcoin blockchain transactions. The process is by design, complex and resource-intensive to ensure that the blockchain remains secure. If mining was easy – then the bitcoin blockchain would not be as secure as it is.
Mining consists of solving complicated mathematical problems required to validate transaction blocks. But extreme complexity can eat away at your profits because of the high processing power needed.
In this article, we will look at bitcoin mining complexity, bitcoin mining pools, and how to solve the challenge of remaining profitable despite increasing mining difficulty.
Bitcoin mining difficulty explained
Bitcoin mining difficulty refers to how much computational power is required to mine bitcoin (BTC). The bitcoin network allows new blocks to be added to the blockchain approximately every 10 minutes.
As more miners join the network and the total hash rate increases, the difficulty level increases, making it more challenging to solve a block. Similarly, if the total hash rate decreases, the difficulty level will decrease as well – making it easier to solve a block.
The bitcoin blockchain is designed to keep production of BTC steady, regardless of how many active miners.
The impact of mining difficulty on profitability
The difficulty of bitcoin mining can have a direct impact on the profitability of bitcoin mining. As the difficulty increases, it becomes more challenging and requires more powerful equipment to solve a block – which results in higher electricity costs and increased hardware expenses for miners.
What else increases bitcoin mining difficulty?
As mining equipment develops over time – this can also increase bitcoin mining difficulty. Specifically, the wide adoption of application-specific integrated circuits (ASICs) means that integrated circuits have been designed specifically to perform only mining functions. This greatly increases the efficiency of ASIC-enabled machines to mine bitcoin.
Not all miners are affected equally by difficulty adjustments. Miners who own more powerful equipment or who have access to cheaper electricity may still be profitable even after the difficulty adjustment.
Adjusting to changes in mining difficulty
Miners must adapt to remain profitable when the bitcoin mining difficulty increases. However, adding new hardware may not always be the only option. Miners can also reduce their costs by finding cheaper sources of electricity or optimising their mining operations.
Joining a bitcoin mining pool is a popular option for many miners to remain profitable despite the increasing difficulty.
Pool mining allows multiple miners to combine their resources and mine as a group, which increases their chances of solving a block and earning a reward. The rewards are then distributed among the pool members based on their contribution to the pool. This can be a more reliable and stable way to earn rewards for smaller miners.