On-chain data shows that the bitcoin mining hashrate has recorded a drop from the new all-time high (ATH) it had just set.
bitcoin mining hashrate has recently plunged
As the bitcoin network works on the proof-of-work (PoW) consensus mechanism, validators called miners have to compete with each other using computing power for a chance to add the next block to the chain.
The total measure of this computing power that is currently connected to the btc blockchain is known as the “mining hashrate.” This metric can be directly correlated to network security, as if a malicious entity has to succeed in an attack, it must take over at least 51% of the total computing power.
Naturally, when the hashrate increases, the resilience of the blockchain also increases, as there are more machines to hack before the 51% target can be reached. Of course, this is only because the new hashrate being added is sufficiently decentralized.
Now, here is a chart showing the trend in the 7-day average bitcoin mining hashrate over the past year:
<img decoding="async" class="alignnone wp-image-287897 size-large" src="https://technicalterrence.com/wp-content/uploads/2024/03/Bitcoin-hashrate-drops-from-all-time-high-but-why.png" alt="bitcoin Mining Hashrate” width=”980″ height=”411″ srcset=”https://bitcoinist.com/wp-content/uploads/2024/03/chart_cab8de.png?w=1392 1392w, https://bitcoinist.com/wp-content/uploads/2024/03/chart_cab8de.png?w=640 640w, https://bitcoinist.com/wp-content/uploads/2024/03/chart_cab8de.png?w=768 768w, https://bitcoinist.com/wp-content/uploads/2024/03/chart_cab8de.png?w=980 980w, https://bitcoinist.com/wp-content/uploads/2024/03/chart_cab8de.png?w=750 750w, https://bitcoinist.com/wp-content/uploads/2024/03/chart_cab8de.png?w=1140 1140w” sizes=”(max-width: 980px) 100vw, 980px” data-recalc-dims=”1″/>
The 7-day average value of the indicator seems to have observed a drawdown in recent days | Source: Blockchain.com
As shown in the chart above, the 7-day average bitcoin mining hashrate established a new ATH just a few days ago. However, the indicator's value has since plummeted.
This decline would suggest that some miners have decided to disconnect from the blockchain. As for why this drop in the metric has occurred, there are likely a few reasons contributing to the trend.
The first, and perhaps most obvious, is the fact that the price of bitcoin has plummeted from its last high. Miners earn their income from two sources, block rewards and transaction fees, but the former accounts for the majority of their income.
Block rewards also remain fixed at their btc value, meaning their USD value is really the only variable for miners' income as a whole. Obviously, when the price of the asset rises, the value of these rewards also increases.
With the recent price drop, the value of the miner's revenue has also fallen. Miners already seeing thin margins, such as those located in places with high electricity prices, may have decided that it is not worth staying connected to the grid after the price drop.
At the same time as the crash occurred, mining difficulty also skyrocketed to a new ATH. Difficulty is a feature of the bitcoin network that controls how difficult it would be for miners to mine on the network.
<img loading="lazy" decoding="async" class="alignnone wp-image-287898 size-large aligncenter" src="https://technicalterrence.com/wp-content/uploads/2024/03/1710778589_733_Bitcoin-hashrate-drops-from-all-time-high-but-why.png" alt="bitcoin Difficulty” width=”980″ height=”413″ srcset=”https://bitcoinist.com/wp-content/uploads/2024/03/chart_117c6b.png?w=1386 1386w, https://bitcoinist.com/wp-content/uploads/2024/03/chart_117c6b.png?w=640 640w, https://bitcoinist.com/wp-content/uploads/2024/03/chart_117c6b.png?w=768 768w, https://bitcoinist.com/wp-content/uploads/2024/03/chart_117c6b.png?w=980 980w, https://bitcoinist.com/wp-content/uploads/2024/03/chart_117c6b.png?w=750 750w, https://bitcoinist.com/wp-content/uploads/2024/03/chart_117c6b.png?w=1140 1140w” sizes=”(max-width: 980px) 100vw, 980px” data-recalc-dims=”1″/>
Looks like the difficulty has gone up in the latest adjustment | Source: Blockchain.com
The concept of mining difficulty exists to ensure that miners cannot simply add additional computing power to the chain to mine new blocks faster and receive new rewards faster.
The implication of the difficulty is that any new hashrate added to the network is essentially new competition for the existing hashrate as they are all competing for the same fixed btc rewards. With the current difficulty in an ATH, individual miners' income would naturally have been affected.
Finally, there is also the fact that the next halving, an event where btc block rewards would be permanently reduced by half, will also happen next month, which would drastically affect miners' income. .
Miners around the world would be coming up with strategies to deal with the halving and, for some, it might even mean leaving the network behind, at least for now.
btc Price
At the time of writing, bitcoin is trading around $68,000, down 5% from last week.
<img loading="lazy" decoding="async" class="alignnone size-medium aligncenter" src="https://www.tradingview.com/x/w4Fkjeht/" alt="bitcoin price chart” width=”1534″ height=”854″/>
btc has rebounded from its weekend drop | Source: BTCUSD on TradingView
Featured image by Brian Wangenheim on Unsplash.com, Blockchain.com, TradingView.com chart
