Bitcoin difficulty adjustment and the surge in BSV price

The continuous increase in Bitcoin's hash rate has been a hot topic in the community recently. LongHash recently published an article discussing the implications of this increasing hash rate on Bitcoin's price and future, especially after this year's Bitcoin halving, which may have a significant impact on Bitcoin miners.

First, let's quickly review the principle of Bitcoin mining. Miners compete with each other to generate new bitcoins by solving computational puzzles. To ensure that a new block is generated approximately every 10 minutes, the difficulty of the calculations in the entire system must be continuously adjusted as the computing power increases. Failure to adjust the difficulty in a timely manner may result in shorter block generation intervals as computing power strengthens. Therefore, the entire Bitcoin system dynamically adjusts the difficulty of the system based on the computing power over a recent period of time.

Currently, mining pools dominated by Chinese miners still hold the advantage compared to miners from the United States and Europe. Chinese miners not only control a majority of the computing power but also typically have lower electricity costs.

On January 15th, the Bitcoin difficulty was adjusted by about 7%, mainly due to a significant increase in Bitcoin's computing power. This is the second time this month that the Bitcoin difficulty has been adjusted; on January 2nd, the Bitcoin mining difficulty was adjusted by 6.6%. Since the second half of 2019, the continuously increasing computing power has led to a steady increase in difficulty. With the exception of November 18, 2019, when the Bitcoin difficulty briefly decreased by around 7.1%, the Bitcoin difficulty has been rapidly increasing for the most part.

The rise in computing power indicates that miners have invested heavily in Bitcoin mining, and the continuously rising difficulty means that competition is becoming increasingly fierce, and mining is becoming more challenging.

So, is the adjustment of Bitcoin difficulty also affecting other cryptocurrencies? Just before the Bitcoin difficulty adjustment on January 15th, the price of Bitcoin SV suddenly began to soar.

Bitcoin SV is a product of the 2018 Bitcoin Cash hard fork. Its performance so far in 2020 has made a significant impression on the market. In fact, around January 10th, the price of Bitcoin SV had already experienced a surge, and starting on the 14th, the price of Bitcoin SV rapidly rose, with a nearly 150% increase within 24 hours.

As of the time of writing this article (January 15th), the price of Bitcoin SV has dropped from its peak (over $400) to around $320. This price is neck and neck with its competitor Bitcoin Cash ($342), showing an increase of about $200 compared to a week ago. The sharp rise of Bitcoin SV has shifted the focus of many miners from Bitcoin to its blockchain.

Of course, with the significant price increase and the rising computing power, the difficulty of Bitcoin SV has also undergone a substantial adjustment in these two days.

The Bitcoin computing power adjustment occurred on January 15th at 7:42 (UTC+8). As shown in the first chart above, the difficulty of Bitcoin SV also experienced a significant adjustment during those two days.

There is no evidence to directly link the surge in the price of Bitcoin SV to the adjustment of Bitcoin's mining difficulty. It is very likely just a coincidence. Some in the market believe that the price change is related to favorable developments for Bitcoin SV's founder—Craig Wright, who claims to be "Satoshi Nakamoto"—in a case involving the so-called "Tulip Trust."

However, it is generally recognized in the industry that computing power is crucial for the security of cryptocurrencies that adopt the PoW consensus. Although changes in BSV's computing power currently may not have much impact on Bitcoin, if the rising BSV attracts some miners from its direct competitor Bitcoin Cash, causing a decrease in its computing power, it could pose a greater threat to BCH.

Another point worth noting is that with the current overall price increase, Bitmain's S9 can mine BSV again because the current price and electricity cost allow for profitability, whereas the previous S9 miners had to shut down. This has prompted more miners to switch to Bitcoin SV because they are no longer operating at a loss, considering both difficulty and equipment/electricity costs.

This article is from our partner LONGHASH

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