Wednesday, March 3, 2021

How Does Bitcoin Network Difficulty Affect Mining Profits?


Bitcoin network difficulty exists to make it more difficult to solve a block on the Bitcoin network so that the rate of block solving stays at around 10 minutes per block. But
network difficulty doesn't just make it more difficult just for you, it makes it more difficult for everyone equally over the network. Over time rising difficulty has had the effect of obsoleting many generations of Bitcoin mining machines. The reason for this obsolescence is not that the machines no longer work but that they become much too expensive to run in terms of energy costs per Bitcoin retrieved. If you had free energy, then any Bitcoin miner can contribute shares to a pool and rake in some free Bitcoin, but not many people have access to free energy.

Bitcoin network difficulty also has the effect, when solo mining, of making it nearly impossible for older Bitcoin mining machines to ever solve a Bitcoin block except in a lottery-like fashion where 1-in-a-billion may do so. Even for the latest generation Bitcoin miners, solo mining a Bitcoin block is difficult because of the hundreds of thousands of late model Bitcoin mining machines competing at the same time to solve a block. But if you hope to solve a block while solo mining for Bitcoin you had better have the latest machines with the latest chips or you are just playing the lottery.

Bitcoin network difficulty affects pool mining a little bit differently. When you are mining in a pool, your Bitcoin mining machines never (!) have to solve a block to get paid, they just have to contribute shares to the mining that is going on at the pool. The more shares your miner contributes, the more share of the reward you get when someone in the mining pool solves the block. So to look at it simplistically, if there are 100 miners in the pool and they are all mining at the same rate, each miner will get paid the same amount when one of the miners solves a block. The network difficulty is not going to lower your share or the payout as long as someone in the pool can still solve a block. An increased network difficulty will make it more difficult to solve a block, yes, but it is more difficult for everyone at EVERY mining pool. Again, this favors (or biases) Bitcoin block production towards the newest, fastest Bitcoin miners. So, if you have a pool with 10,000 terahash of mining power and they are all Antminer S9s and you have a pool with 10,000 terahash of Antminer S19s, the pool with the S19s is going to solve most of the blocks because those are the latest/fastest miners. You can check blockchair.com and see which mining pools are solving the most blocks and assume that they are composed of the latest machines. If you want more frequent payouts you could sign up to mine with that pool. More frequent payouts will probaby result in smaller payouts. More hashpower and more miners on a pool result in smaller payouts.

So in conclusion, Bitcoin network difficulty will result in less chances of solving a block when solo mining but have little effect when you are mining in a pool since everyone is subject to the mining difficulty increase. Also, don't mine at a pool where all the miners are using older equipment because they will find blocks much less frequently.

Happy mining, happy HODLing.

Check out: The Essential Guide to Bitcoin Mining: A Cryptocurrency Tutorial

Paperback, Kindle, Nook, Kobo, Google Play

 

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