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Here's a gap in my understanding: why does bitcoin mining explode so much when the price goes up? With all the new miners, doesn't the difficulty adjustment kic

Here's a gap in my understanding: why does bitcoin mining explode so much when the price goes up? With all the new miners, doesn't the difficulty adjustment kick in after two weeks and largely negate the price increase? Or does the difficulty scaling not quite work like that?

X6S1x6Okd1st 6y ago
The difficulty adjustment only goes up by a certain amount, and you'd only expect mining and difficulty to normalize when it's a margin driven business. If there is some limiting factor (e.g. not enough hardware, not enough power etc) or if price is increasing faster than bitcoin mines can come online then the difficulty adjustment can't keep up. Other coins have solved this, in fact bitcoin cash had to solve it as soon as the fork happened because it would have taken too long to hit an adjustment period.
swinglock 6y ago
The difficulty is what adjusts the distributed time function of the network to stay on target, so that the inflation is controlled, measured in Bitcoins. The Bitcoin network only knows about Bitcoins, not how much USD it trades for. When the blocks being mined approximately every 10 minutes is valued higher in USD, naturally more people want more of those blocks. So the miners expand simply to compete, since what they compete for is worth more.
noxer 6y ago
With the current price large miner make huge profits anyway. Mining a bitcoin on average coasts way way less then its worth so obviously if the price increases the profit does too and the difficultly adjustment doesn't take that all away.
ufo 6y ago
The difficulty adjustment ensures that, on average, there will always be 6 bitcoins minted every 10 minutes. If the price of the bitcoin increases, miners will be willing to spend more energy to chase those 6 bitcoins. The end result is the network becomes less efficient, as more energy is burned to confirm the same number of transactions. If difficulty adjustment didn't exist then mining would still be as easy as it was in the satoshi days. The current ASICs would have already finished mining all 21M bitcoins several times over.
- bavell 6y ago
  > ...on average, there will always be 6 bitcoins minted every 10 minutes Just to clarify a bit further, this is true right now but the amount minted with each block isn't constant and decreases over time. More info on block rewards: https://www.bitcoinblockhalf.com/ https://www.bitcoinblockhalf.com/

X6S1x6Okd1st 6y ago

The difficulty adjustment only goes up by a certain amount, and you'd only expect mining and difficulty to normalize when it's a margin driven business. If there is some limiting factor (e.g. not enough hardware, not enough power etc) or if price is increasing faster than bitcoin mines can come online then the difficulty adjustment can't keep up. Other coins have solved this, in fact bitcoin cash had to solve it as soon as the fork happened because it would have taken too long to hit an adjustment period.

swinglock 6y ago

The difficulty is what adjusts the distributed time function of the network to stay on target, so that the inflation is controlled, measured in Bitcoins. The Bitcoin network only knows about Bitcoins, not how much USD it trades for. When the blocks being mined approximately every 10 minutes is valued higher in USD, naturally more people want more of those blocks. So the miners expand simply to compete, since what they compete for is worth more.

noxer 6y ago

With the current price large miner make huge profits anyway. Mining a bitcoin on average coasts way way less then its worth so obviously if the price increases the profit does too and the difficultly adjustment doesn't take that all away.

ufo 6y ago

The difficulty adjustment ensures that, on average, there will always be 6 bitcoins minted every 10 minutes. If the price of the bitcoin increases, miners will be willing to spend more energy to chase those 6 bitcoins. The end result is the network becomes less efficient, as more energy is burned to confirm the same number of transactions. If difficulty adjustment didn't exist then mining would still be as easy as it was in the satoshi days. The current ASICs would have already finished mining all 21M bitcoins several times over.

bavell 6y ago
> ...on average, there will always be 6 bitcoins minted every 10 minutes Just to clarify a bit further, this is true right now but the amount minted with each block isn't constant and decreases over time. More info on block rewards: https://www.bitcoinblockhalf.com/ https://www.bitcoinblockhalf.com/