Expected Bitcoin Difficulty in 2018
There are lots of videos and articles on what Bitcoin difficulty is, and lots of charts on how it has changed over the past couple of years. But this isn't really helpful if you're thinking about investing in cloud mining, or maybe even buying your own mining rig.
This guide has our thoughts on what will affect Bitcoin difficulty over 2018.
We focus on key factors that may affect Bitcoin's difficulty in this guide. If you're looking for how profitable ASIC miners are in 2018, see this guide.
So let's start by looking at how Bitcoin difficulty has changed every 4 months for the past 3 years:
Sep 2014 - 29.8M
Jan 2015 - 43.9M, Increase of 47%
May 2015 - 48.5M, Increase of 10%
Sep 2015 - 59.3B, Increase of 22%
Jan 2016 - 103.8B, Increase of 75%
May 2016 - 194.2B, Increase of 87%
Sep 2016 - 220.7B, Increase of 14%
Jan 2017 - 336.9B, Increase of 53%
May 2017 - 560B, Increase of 66%
Sep 2017 - 922.7B, Increase of 54%
*Values taken from: https://blockchain.info/charts/difficulty?timespan=3years
NOTE: As of 19th December 2017, many difficulty charts, including the one above, seem to be displaying outdated data. We've posted a video explaining the cause of this here.
Rate of Bitcoin difficulty increase
Looking at the Blockchain chart above for the past 2 years, it definitely looks exponential; e.g. it doubles at the same rate every 4 months. But the figures for the past 3 years don't do that, they vary significantly. In 2015 it took around 11 months for the difficulty to double, in early 2016 around 6 months, in late 2016 around 8 months and then in 2017 between 5-6 months. Rather than doubling at a consistent interval, it seems to vary based on factors like available hardware and public interest.
What we're suggesting is that the rate Bitcoin difficulty is increasing is not fixed, and can be anticipated. Right now, in December 2017, Bitcoin is very popular, with thousands of new investors and miners every day - so significant difficulty increases are to be expected. Many new people are interested in bitcoin mining, allowing hardware manufacturers to sell miners in larger quantities, causing more total hashpower to be available - driving Bitcoin difficulty up.
The key relationship here is that the amount of new hardware becoming available is strongly linked to the demand for it. A risk is that if the people making these miners produce too many, the difficulty will rise so fast that Bitcoin mining profitability goes down massively. This occurred for Dash when the Antminer D3 came out.
There are also scenarios that can cause Bitcoin's difficulty to decrease. August 2017 is a good example of this, where a lot of miners moved their hashpower to mine Bitcoin Cash (as it was more profitable at the time). This decreased hashpower mining Bitcoin, causing Bitcoin's difficulty to decrease for 2 weeks. If you stay up-to-date with these types of scenarios and mine the more profitable coins (Bitcoin Cash in this scenario), you can get extra coins for 2 weeks and sell them immediately for a great return on investment (or just HODL them!).
Another argument suggesting Bitcoin mining will remain profitable long-term is to look at it from the perspective of large mining operations. If you were a miner running a large setup, and Bitcoin mining was to no longer be profitable, then you'd likely start mining something else that was. If there were no profitable coins for a long period of time, you'd likely have very high operating costs and be forced to shut down your operation eventually. For a smaller miner running just a few Antminers or some cloud mining, this would be less of an issue. So in theory as long as Bitcoin stays popular and its price continues to increase, if you can get cheap electricity Bitcoin mining should always stay profitable.
This last argument in particular is very speculative, so be aware that for a worst-case scenario if Bitcoin's price was to fall for a long-period of time, even if you had cheap electricity, there's a risk that mining it would no longer be profitable.
Bitcoin Mining Reward Halfing in 2020
In June 2020, the reward for Bitcoin mining will half. This could cause big issues in the long-term as it essentially makes it half as profitable overnight. So if miners are only making a small profit prior to this, they'll then be running at a loss just after it. At this point open-ended contracts on sites like Genesis Mining will likely no longer be profitable (although they might not even last that long).
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