Crypto analysis firm Glassnode reported that the Bitcoin mining difficulty has increased once more by 3.6% and is at its newest all-time high.
#Bitcoin mining difficulty increased by 3.6% and is at an all-time high.
— glassnode (@glassnode) August 24, 2020
At the moment, the mining difficulty is at 17.56 T. However, various sources indicate that the mining difficulty will increase even more in two weeks’ time.
In light of this, here are the things that you need to know regarding the factors that contribute to the Bitcoin mining difficulty’s meteoric rise, as well as some of the foreseeable effects it will have on the entire crypto community.
More Capitulation, Less Competition
The increased mining difficulty will cause more small-time miners to give up the BTC mining competition altogether and capitulate their BTC reserves, as they have been doing so for months.
The network usually corrects itself depending on the number of miners and the total computing power. If there are too many miners, then the competition should be tougher or else all 21 million BTC will be mined faster than expected.
Another factor that has added more fuel to the competition is the third Bitcoin halving that happened earlier this year. The previous mining reward of 12.50 BTC has been cut into 6.25 BTC.
Many experts claim that these factors are part of the reason why Bitcoin’s price today has become significantly higher.
But one crypto executive believes that the effects of the ever-increasing BTC mining difficulty extends way further than this.
China to Win “Tech Cold War”
In an opinion article published on The Hill, Ripple Co-Founder and Executive Chair Chris Larsen claimed that most of the world’s financial infrastructure is based on outdated technology tracing back from the 1970s. This is problematic since the world’s economic landscape is changing courtesy of blockchain technology, digital wallets, cryptocurrency, and interoperability protocols.
He also pointed out that the majority of cryptocurrency mining power is located in China. In fact, the Chinese government has even provided energy subsidies for cryptocurrency miners to cut their operating costs.
At least 65 percent of cryptocurrency mining is concentrated in China, which means the Chinese government has the majority needed to wield control over those protocols and can effectively block or reverse transactions.
Larsen’s statements may indeed be true. According to blockchain.com, China-based mining pools like F2Pool, Poolin, and AntPool take the biggest slices in the pie in terms of hashrate distribution.
Larsen’s theory regarding China’s control over Bitcoin mining — whether it proves to be correct or not — is the least of the concerns of some people today. For them, including the International Monetary Fund (IMF), cryptocurrencies may become the next step in the evolution of money.
The CBDC Arms Race
One asset class that many countries are being rumored to get involved with is the creation of central bank digital currencies (CBDCs). As the name suggests, these are digital currencies that are issued by the country’s central bank. This will mean that transactions will be better traced and controlled by the government.
China is currently leading the CBDC arms race. Meanwhile, the US is light years away from considering the creation of this type of currency.
“Unfortunately, the US has taken a mostly hostile approach to these new [finance] technologies,” said Larsen in the same article, “establishing policy either through enforcement actions or blanket pardons to specific assets.”
Nevertheless, many believe that it will take a while before CBDCs become fully integrated into China’s monetary system — at least in comparison to the rate of DeFi growth.
In conclusion, Bitcoin’s increasing mining difficulty will remove many small-time miners from the Bitcoin network, ultimately leaving massive companies, many of those in China, to maintain the network’s stability and control the price of not just Bitcoin, but the cryptocurrency market and the blockchain industry as a whole.
Who knows, the monopoly of Bitcoin mining is just one of the many gears that China needs for it to tip the scales and become the way for the cryptocurrency to fully replace fiat money as the prescribed means of payment in the world, whether it be for the good, or for the bad.