Bitcoin is headed for what is expected to be the largest downward difficulty adjustment in its history.
As China has effectively opted out of Bitcoin by instructing banks and payment service provides to cut off Bitcoin-linked transactions and ordering miners in various regions to shut down their operations, Bitcoin miners are packing up and moving west. The result: Bitcoin's hash rate has seen a drastic drop, from highs above 180 to just below 100 exahashes per second at press time.
In the aftermath of the regulatory crackdown in China, which used to house more than 60% of Bitcoin's global hash rate, various photos have been emerging showing the process of bulk shipments of mining rigs to other countries. For many, the destination is North America, where many locations offer cheap and abundant hydroelectricity.
Meanwhile, Bitcoin is only days away from the next difficulty adjustment, which looks to be the largest downward adjustment in all of Bitcoin's history.
The difficulty level determines how difficult it is for miners to solve the computational puzzle required to find a bitcoin block. The more hash rate the network gains, the faster blocks can be mined, and vice versa. Every 2,016 block, or roughly every two weeks, the difficulty is therefore automatically adjusted based on the current hash rate. This way, Bitcoin's approximate block time of ten minutes is ensured.
As China's move against Bitcoin required a large portion of the network to shut down its miners, the hash rate has dropped considerably over the course of a couple of days. The next difficulty adjustment is therefore anticipated to result in a cut of more than 23%.
The impact of the downward difficulty adjustment for Bitcoin users will be negligible. In fact, you likely won't even notice it. The difficulty adjustment is part of how Bitcoin operates, and therefore, Bitcoin will simply continue operating as it always has.
Similarly, the lower hash rate, which is currently back to early 2020 levels, doesn't immediately affect end users looking to buy, sell, or store bitcoin. Although lower hash rate technically means that less hash rate is required to launch an attack on the network, such an attack is extremely unlikely, both due to economic incentives to mine with the network rather than against it, and a global shortage in mining hardware that makes it extremely complicated, costly, impractical, and essentially impossible to gain control over the mining power required to attack Bitcoin.
The hash rate drop is further widely anticipated to be temporary as miners are forced to relocate. Many expect the hash rate to recover as miners plug in their rigs again — outside of China this time.