Recently, there are more and more materials about how the complexity of mining affects the profit from the mining of coins. And an alarming motive sounds more and more often – the complexity of mining is so rapidly growing that it will soon be unprofitable to mine cryptocurrency. Is it so? To answer this question, you need to figure out what the complexity of mining cryptocurrency is, what it is generally needed for, on what factors it depends and what it affects. Understand this article!
Why was the complexity of mining cryptocurrency introduced?
Mining is the generation (disclosure) of new blocks in the blockchain chain. To uncover new blocks, the miner must perform mathematical calculations. For each opened block, he receives a reward – a certain number of generated coins.
For example, the total issue of Bitcoin is 21 million coins, and the last coin should be mined only in the year 2140. These values are laid in the network developers.
If all users rush to extract coins in unlimited quantities, it will be impossible to keep the issue. Therefore, restrictions were imposed on the extraction of coins. And the main limitation was the complexity of mining.
This is the network blockchain parameter, which shows how difficult it is to perform a mathematical calculation in order to uncover a new block and, accordingly, receive a reward for it.
If we take for example the same Bitcoin, then the developers have entered the base value for the planned rate of issue of coins – the search for one block should take 10 minutes. It does not matter how many miners will be involved in the mining process.
Bitcoin developers allowed the miners to open the first 2016 blocks, and then recalculated the rate of mining coins, to adjust its complexity. According to the plan, 2016 blocks should be mined for 14 days (10 minutes per block). In this case, the complexity of mining equals one – this is the basic value embedded in the network.
But miners coped with the task faster, and the complexity of mining was increased in order not to leave the planned pace. But it is obvious that in different periods the speed of mining coins will be different. Accordingly, the complexity must be periodically recalculated.
In the Bitcoin network, recalculation of the complexity still occurs every 2016 mined blocks. If the search for the latest 2016 blocks took less than 14 days, the complexity of mining will be increased. In other words, if the blocks were opened too quickly, it is necessary to complicate the task in order not to “overtake” the values embedded in the system.
What does it look like for miners? To get the next 2016 blocks, they will have to use more computing power, and coins will be generated more slowly.
In the reverse situation – when the previous 2016 blocks were mined in less than 14 days – the complexity of mining will automatically decrease. That is, miners will have to spend less computing power, and coins will be mined faster. After all, the utilized capacity is not enough to fulfill the plan.
Thus, through the complexity of mining, cryptocurrency developers control the rate of the issue of new coins. If the coins are mined too quickly, the extraction bar rises, if slowly it goes down. All this is done only to keep emissions at the pledged level.
The degree of increase or decrease in the complexity of mining depends on the magnitude of the gap between the pledged in the system and the actual time spent on mining coins. For example, if the real figure is ahead of the planned by 10%, then the complexity will be increased by 10%.
What influences the complexity of mining cryptocurrency?
From the definition of complexity itself, it is clear that this indicator depends on two main factors:
- network hash rate (that is, the total computing power of the mining equipment involved);
- time spent uncovering previous blocks.
In practice, these parameters are closely interrelated.
If the hash rate has grown, then new participants have joined the cryptocurrency mining. They connected their equipment to the network – accordingly, the computing power of the network increased. Consequently, it will take less time to open the block than when the hash rate was lower. From this it is clear that
To calculate the new complexity of mining, complex formulas are used. But, to understand the mathematical justification for this parameter, it is enough to consider the equation embedded in the system time for the disclosure of one block.
As we remember, the basic complexity equals one. Let’s say the developers took 10 seconds to open a single block. After a simple calculation, it is clear that such a number is reached when the hash rate is 0.1 H (10 = 1 / 0.1).
Now suppose that new users have connected to the mining, and the hash rate from 0.1H has increased to 100H. The time for opening the block should still be 10 seconds set in the system. That is, 10s = C / 100H. For the equation to work, the indicator C must be no longer 1, but 1000 H / s.
Based on this pattern, it is obvious that the complexity of mining different cryptocurrencies can not be the same. It depends on the time taken to extract the block in the system and the current hash rate of the network.
Moreover, it becomes clear why complexity is constantly changing. If the pledged block production time is a constant, then the hash rate is a dynamic indicator. The hash rate is changing – the complexity of mining is also changing.
The more popular the cryptocurrency, the more miners interested in its production. They connect their computing power to the network, thereby increasing its hash rate and, accordingly, the complexity of mining.
The complexity of mining different cryptocurrency
For all cryptocurrencies that can be mined, you can calculate the complexity of mining. Search for these data is on the official websites of cryptocurrency or on special sites aggregators, which calculate various indicators of cryptocurrency in realtime.
But given the dynamic hash rate, such calculations can not be considered absolutely accurate. Experts advise taking data from several sources and calculate the average value.
Many miners are guided by analytical reports posted on the site https //www.coinwarz.com/charts/difficulty charts. But for users from the CIS countries, the https //bitinfocharts.com/ru/ resource adapted to the Russian-speaking audience will be more convenient.
For example, at the time of this writing, the complexity of mining Bitcoin, according to https // bitinfocharts.com/ru/, is 2,603,077,300,219H / s, and the daily fluctuation is at + 15%.
The same indicators for ethereum are 2,276,000H / s and + 0.37%, for bitcoin cache – 318.709.978.264H / s and 3.7%, for lightcoin – 4.341.368H / s and + 4%, for desh – 79.964.404H / s and 2%, for monero – 93,162H / s and 11%.
We did not accidentally consider the difficulty of mining several top cryptocurrencies. If we analyze the indicators, two more patterns become clear:
- the more users involved in the mining of cryptocurrencies, the higher the complexity of its mining;
- mining complexity decreases when the cryptocurrency market value falls and rises when the rate rises.
What affects the complexity of mining cryptocurrency?
Of course, on the profitability of mining coins.
The higher the complexity of mining, the lower the income of the miner. For example, if complexity increases by 10%, revenue also decreases by 10%.
What follows from this?
The same mining equipment brings different profits depending on the current complexity of mining coins.
For example, last year’s ASIC miner Antminer S7 in July made it possible to mine about 0.06 BTC per month. But already in November, when the network complexity doubled, the profit from using the same ASIC was already 0.03 BTC per month, that is, exactly two times less.
In the period from July to November, the profitability of mining has halved. However, at the same time, the market value of the coin increased from 2.4 to 7.6 thousand dollars, that is, more than three times. So, the miners came in plus due to the growth of the exchange rate in relation to money.
The complexity of mining cryptocurrency: what to expect next?
According to experts, the complexity of the production of cryptocurrency does not directly depend on its market value, but there is an indirect connection between these indicators.
If the complexity of mining has increased, then the cryptocurrency has become more popular. More users have learned about it, and more miners have sent their computing power to mine it. But the growing popularity of cryptocurrency naturally leads to an increase in its value – the more people want to buy it, the higher the price of the coin.
Experts estimate that the mining difficulty of top cryptocurrencies increases every month by an average of 8%. That is, other things being equal, the profitability of coin mining decreases by 8% every month.
This is the main reason why many experts believe that in the near future, the mining of cryptocurrency will be completely pointless. As practice shows, even with an average growth rate of 8% per month, the yield of almost any mining equipment in 6 9 months drops to almost zero.
Be that as it may, it is obvious that today it makes no sense to start mining cryptocurrency with high complexity. The threshold for entry is too high, and the competition in the network is huge.
The first option is costly and not the most reliable – it’s not a fact that it will turn out to recoup the money invested in the equipment until the mining complexity jumps again. The second option is quite risky – if the cryptocurrency does not fire, you will not receive much profit from its production either.
The optimal solution is to mine the popular cryptocurrencies, the complexity of which so far allows for the extraction of simple equipment (Litecoin, Dash, Monero, Bitcoin Cash and others).
The maximum profit from mining can be obtained only by those users who are among the first to get coins (when the reward is distributed among fewer people). And in most recently appeared cryptocurrency mining is not provided at all.