Bitcoin’s network-wide computing power has been declining since June 19, when Sichuan Province decommissioned mining. According to Bitinfochart data, bitcoin network-wide arithmetic dropped to 58.7971 E on June 28, also the first time since August 18, 2019 that it fell below 60 E. Not only that, June 27, 2021 also became the slowest day for bitcoin to come out of a block in the past decade, taking an average of 1,400 seconds (about 23.3 minutes) that day to mine a bitcoin block, while the average block time previously remained essentially at around 10 minutes. There are concerns that the Bitcoin network will be brought down by this, but will it really be? Let’s take a look at whether Bitcoin will fall apart as a result, or if it will slowly adapt to market changes.
Will the drop in arithmetic power affect the price going lower?
Bitcoin hit an all-time high of $65,000 in April of this year and has been falling ever since, and network arithmetic seems to be following the price trend back down. Some industry analysts believe that bitcoin prices depend on the level of arithmetic power, but as things stand now, there doesn’t seem to be enough evidence and data to assert a direct correlation between the two. And historically, there has been controversy over whether there is a direct relationship between bitcoin price and arithmetic power.
Arithmetic power, also known as hash rate, the combined computing power used by market capitalization to mine and process transactions on a proof-of-work blockchain, is also one of the metrics used to determine the health of a blockchain network. China controls about two-thirds of the world’s bitcoin mining computing power. But just in early June this year, the country stepped up its crackdown on bitcoin mining, with authorities in Sichuan province issuing a notice requiring power generation companies to investigate and correct themselves, stop supplying power to virtual currency mining projects, and implement national cleanup requirements without fail. Not only that, the notice also requires the local government to immediately carry out a dragnet-type investigation, the investigation found virtual currency “mining” project must immediately shut down.
In addition to Sichuan, other provinces such as Qinghai, Yunnan, Inner Mongolia and Xinjiang have also called a halt to bitcoin mining activities. This unprecedented crackdown has caused Bitcoin’s network-wide computing power to fall in a “free fall”. According to the latest data, Bitcoin’s network-wide computing power fell to 58.7971 E on June 28, the lowest level since August 18, 2019.
In response, MicroStrategy CEO Michael Saylor said calling a halt to bitcoin mining could be a “trillion-dollar mistake” because China has a 50 percent market share of bitcoin computing power, generating $10 billion in revenue annually and growing at 100 percent annually. And the annual growth rate could be 100%.
In fact, Tesla founder Elon Musk raised the issue of bitcoin’s energy consumption in May. He tweeted at the time that Tesla would stop accepting plans for users to buy vehicles with bitcoin due to the severe energy burden and fossil fuel consumption caused by bitcoin mining. The tweet immediately triggered a short-lived plunge in the price of bitcoin and fluctuations in computing power across the network. But overall, the bitcoin arithmetic market didn’t see much of a shakeup until the government recently stepped in to crack down on bitcoin mining.
We found that since this domestic restraint on bitcoin mining began, some of the affected mining entities started selling bitcoin as miners needed to cash out and pay for the cost of mining machine transfers, though they did not panic sell bitcoin, and some miners did not even sell any bitcoin in their lifetime. Statistically, the average 7-day outflow from bitcoin miners has plummeted to a five-year low, meaning that bitcoin miners seem to prefer to hold their bitcoin rather than sell it. In addition, a number of bitcoin miners with domestic backgrounds are starting to look for new mining lows as market conditions have changed, with the U.S., El Salvador, Paraguay and Kazakhstan all listed as potential new bases for Chinese mining companies.
So, while there has been a significant drop in bitcoin arithmetic, what has happened to the price of bitcoin that pairs with it? At least for now, the surface numbers show that the bitcoin price has not been affected by the plunge in arithmetic power, which has sparked a discussion in the market about the relationship between price and arithmetic power, and whether the bitcoin price will follow arithmetic power down in the future.
In fact, the higher the price of bitcoin, the more profitable it is to mine. So when the price goes up, it will undoubtedly attract more miners to the Bitcoin network, and this correlation is logical. Simply put, the higher the price of bitcoin, the higher the network’s arithmetic value will be. However, judging from the nearly 10% increase in bitcoin price over the last 7 days, it does not seem to be affected by the continued decline in network-wide arithmetic power. Also on October 19, 2020, when bitcoin’s network-wide arithmetic plummeted from 136E to 100E, the bitcoin price showed no significant decline and broke through the $20,000 resistance level within the next month. As you can see from the current stage, the correlation that exists between bitcoin’s arithmetic power and price is very weak.
Will Bitcoin be flexible enough to adjust?
In fact, Bitcoin can address the plight of falling arithmetic by adjusting the mining difficulty. This is because the mining difficulty ensures that Bitcoin blocks must appear on schedule, and therefore newly minted BTC will also appear on schedule, ensuring that the network can not only absorb the shock of a short-lived arithmetic plunge, but also effectively enforce Bitcoin’s monetary policy. We are expected to see the largest difficulty (downward) adjustment in Bitcoin’s history this Friday, but until then, it may take us a little longer to wait until Bitcoin is out of blocks.
After every 2016 blocks, Bitcoin will adjust the mining difficulty based on network conditions; if the arithmetic rises, resulting in no need for 10 minutes to mine a Bitcoin block (i.e., less than 2 weeks to mine 2016 blocks), then the Bitcoin network will subsequently increase the mining difficulty; if the arithmetic falls, requiring more than 10 minutes to mine a Bitcoin block, then the Bitcoin network will subsequently reduce the mining difficulty.
Once the bitcoin mining difficulty is adjusted, bitcoin miners that remain on the network will gain more market share. However, it is important to note that this drop in Bitcoin’s arithmetic power has hit the industry harder than many people thought, and until the Bitcoin mining difficulty is adjusted, the network will still be very slow to get blocks out, and after the Bitcoin mining difficulty is adjusted, it is still worth waiting to see if the network will return to the state people expect.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/will-bitcoin-fall-apart-after-the-counting-nightmare/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.