Bitcoin is unlike any currency, with no central figure as well as having digital scarcity. Its distribution model is unique as well, with the majority of Bitcoins entering circulation in the first couple of years, with the last Bitcoins not being mined until around the year 2110 – 2140.
This distribution model, more commonly known as mining, which once was feasible on any computer, is now dominated by machines running ASIC chips, specially designed to run the SHA-256 algorithm which secures the Bitcoin network.
To make sure that a Bitcoin block was released every 10 minutes such as Satoshi initially intended it to be, a factor called difficulty comes into play. Without getting too technical, mining is when a nonce (number used only once) is found that satisfies the problem of the block.
Difficulty increases or decreases every 2016 blocks (around two weeks) based on how fast or slow the blocks are being solved. For example, if the average block time is 8 minutes, the difficulty will increase in an attempt to achieve the planned 10-minute block time.
If the opposite were to occur and say the average block time was 12 minutes, difficulty would decrease. In the end, the adjusting of difficulty is all in an attempt to achieve equilibrium.
As you can see from the chart which has recorded the Bitcoin network difficulty of the last several months, difficulty increased
around on average 15% every 2016 blocks. October 9th should be especially noted with a 0.58% difficulty increase. While a small rise, an increase nonetheless. December 2nd is the first time the difficulty has decreased, which is significant for several reasons.
Why Is Difficulty Dropping ?
One of the most important reasons that should be taken into consideration first is that at the moment there are no huge technological leaps from hardware companies. The product cycle of 28nm technology is coming to the end and long gone are the massive increases seen from technology moving from 55nm to 40 nm, or more recently 40 to 28 nm.
Most of the leading software companies are now deep into development for their next generation of hardware with most boasting 16nm technology.
If there’s one thing you take away from this, it should be the Bitcoin network is growing up. Now that Bitcoin difficulty has stagnated, it may be possible once again for hobby miners to enter the mining space as a stable difficulty should make predicting ROI more accurate, however this will likely be short lived. The race for 16nm technology is on and likely only months away, with delivery of these products we’ll likely see huge jumps once again!