Crypto Miners Struggle with Increasing Difficulty Through Market Correction
Cryptocurrency mining has been in the news a lot lately. Back in December, the very popular mining service Nicehash experienced one of the worst cryptocurrency security breaches to date, where they lost around $70M overnight. They have since reorganized and are currently fully functional.
While crypto mining seems to only attract negative press, it is a hugely popular and growing field. During their latest earnings call, Nvidia CFO Colette Kress said demand from the crypto mining community “exceeded our expectations.” So much so that despite one of the worst cryptocurrency market corrections to date, the difficulty of mining has continued to rise.
Mining difficulty is a unit of measurement designed to indicate how difficult it is to find a hash below the given target (a target is the number that a hashed block header must be less than or equal to in order for a new block to be awarded), either on the bitcoin network or any other currency that can be mined through proof-of-work (PoW).
There are multiple factors that affect the profitability of mining:
- Global block difficulty
- Number of miners on network (demand)
- Mining pool share difficulty
Difficulty goes up and down to find an equilibrium between these three factors. Ultimately, as the network difficulty increases, miners need more and more powerful hardware to accommodate the change. With the increased demand for more powerful mining rigs, came an exponential rise in the cost of purchasing the Graphics Processing Units (GPUs) that provide the computing power.
The two main players in the space, AMD and NVIDIA, saw their stock prices rise an incredible 585% and 760%, respectively, over the last 24 months, largely due to demand for their GPUs from the mining community. These mining-driven, corporate profits have encouraged other companies to enter the space. The most notable being Samsung, who recently announced they are now developing their own brand of cryptocurrency mining hardware.
Regardless of what brand of GPU a miner owns, they always look to mine the most profitable coin. The rationale is that even if they don’t like the use case for the coin they’re mining, they can simply sell it for bitcoin and buy whatever they like.
Most Profitable Coins with Top AMD Miner
Most Profitable Coins with Top NVIDIA Miner
Both brands of GPUs have algorithms that they calculate most efficiently, but it is clear that the NVIDIA miners are currently more dynamic. The third category of mining hardware, Application-specific integrated circuit chips (ASICs), is bitcoin mining hardware that was created solely to solve Bitcoin blocks. Many new proof-of-work algorithms are designed to be resistant to ASIC miners so that their global hash isn’t flooded by corporate farms.
Regardless of what hardware miners use, there has been a clear trend of increased difficulty over the last few years.
Here is a difficulty breakdown of the more popular coins to mine over the last 3 months:
Bitcoin Cash – Best Mined with ASIC Miner
We decided to show you the Bitcoin Cash chart instead of bitcoin’s, as it is far more interesting. Bitcoin Cash’s SHA-256 algorithm can only be mined profitably with an ASIC miner. These are difficult coins to mine, as you are competing with large mining farms. While the main ASIC farms were in China, some believe Canada might be the next haven, due to the cheap power and fear of increased regulation in Asian countries.
You will notice that the rise in BCH’s difficulty was not at all affected by the current market correction.
Ethereum – Best Mined with AMD GPU
While it has been a long-running go-to for cryptocurrency miners, the Ethereum network is becoming more and more difficult to mine on, and amateur miners will likely find little profitability relative to some other options. Ethereum is believed to be adopting a proof-of-stake (PoS) system sometime in 2018.
Zcash – Best Mined with NVIDIA GPU
Along with other Equihash coins like Zclassic and Zencash, Zcash is a very popular (and profitable) coin to mine with an NVIDIA GPU. The mining difficulty was fairly flat throughout the major January correction but is rapidly rising through February.
Monero – Best Mined with AMD GPU
Monero, currently the largest privacy coin, has seen a very steady rise in difficulty over the last three months. Monero is commonly the coin mined via browser hacks, or in browser miners like CoinHive.
Vertcoin – Best Mined with NVIDIA GPU
Vertcoin offers a good case study on mining difficulty relative to profitability. In early December, Vertcoin’s block rewards were halved from 50 VTC to 25 VTC per block. As you can see in the above chart, the network difficulty completely dropped off, as miners switched to different coins after receiving fewer rewards for their hash power. Eventually, after a few wild fluctuations, the mining difficulty found an equilibrium between demand and profitability and has stayed fairly constant since.
You can learn more about the reward-halving event here.
It will definitely be interesting to see how cryptocurrency mining evolves over the next year, as more and more coins begin to adopt a PoS system. We anticipate that miners will begin looking to alternative passive income sources, such as masternodes, as they begin to see their profit drop off.