Bitcoin mining has two main functions: securing the integrity of transactions and issuing new Bitcoins into the system. This process is carried out by miners, who use specialized equipment to solve complex cryptographic puzzles, determined by the network's difficulty algorithm.

When a miner successfully solves a puzzle, they are allowed to add a confirmed transaction block to the blockchain and receive a reward in the form of newly created Bitcoins. This reward system incentivizes miners to participate in securing and maintaining the integrity of the network while promoting competition to be the first to solve the puzzle. This competition will continue until Bitcoin reaches its maximum limit of 21 million tokens.

When the Bitcoin supply reaches this limit, miners will no longer receive rewards in the form of newly minted Bitcoins. Instead, they will earn income from transaction fees paid by users, helping to maintain network operations when no new Bitcoins are issued.

Hash rate of Bitcoin

The hash rate of Bitcoin is an index that measures the total computational power contributed by miners to the network, reflecting the number of hash operations performed per second to confirm transactions and secure the blockchain. A higher hash rate typically means greater security for the network, as this makes network attacks or manipulations more difficult. The hash rate of the network will be influenced by factors such as difficulty adjustments and block creation times, thereby ensuring stability and security for the Bitcoin system.

After the fourth halving event in April 2024, the hash rate of the Bitcoin network reached a record high. Along with this, Bitcoin prices also recorded an increase of about 4% as of early November. The halving event reduced the reward for each block from 6.25 BTC to 3.125 BTC, resulting in a decrease in miners' income, while related costs such as energy and equipment remained unchanged.

Although profit margins are shrinking, the increase in hash rate still reflects strong interest from miners, which is often seen as a positive signal. A high hash rate means fierce competition in the Bitcoin mining space, thereby enhancing the security and sustainability of the network.

This strong increase may be driven by a moderate rise in Bitcoin prices following the halving event. As Bitcoin prices continue to rise, mining becomes more attractive, potentially driving the growth of hash rate and reinforcing network security.

Source: CryptoQuant

Currently, the hash rate of Bitcoin is at an all-time high.

Bitcoin mining difficulty

The difficulty of Bitcoin mining is an index that measures the challenge level in the computational process that miners must overcome to confirm transactions and add new blocks to the blockchain. The Bitcoin network automatically adjusts this difficulty every two weeks to maintain a stable block creation time of around 10 minutes, regardless of fluctuations in total hash rate.

According to CryptoQuant's CEO, Ki Young Ju, the latest mining difficulty index has surpassed the milestone of 101.6 trillion (T), marking a record high in difficulty. Ju stated that this is a milestone he never imagined would be reached in the past.

Bitcoin mining difficulty | Source: CryptoQuant

The increase in difficulty helps ensure that the amount of new Bitcoins issued into the system remains stable, avoiding situations of oversupply or undersupply. If there is a decrease in the number of miners due to unfavorable market conditions, the difficulty will automatically adjust downward.

Initially, the difficulty of Bitcoin mining was set at 1, allowing mining to be performed on personal computers. However, as the number of miners and network participants increased, competition became fierce, leading to a significant increase in difficulty. Over the past three years, difficulty has risen from 21.6 trillion to over 95.67 trillion, reflecting the rapid development of the Bitcoin mining ecosystem.

As mining difficulty increases, the number of Bitcoins issued becomes scarcer, which can directly affect the circulating supply and, combined with high demand, may lead to an increase in Bitcoin prices.



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