Complexity of the network in cryptocurrency mining

Any person involved in cryptocurrency mining has come across such a concept as the complexity of the network. It directly affects the profitability of the computing equipment involved, but practically does not apply to those who use cryptocurrencies as a payment asset.

This article discusses the question of what the difficulty of mining cryptocurrencies is, how it affects the income of miners, and whether it is possible to reduce its impact on profitability. Studying the information presented will help to understand why the cryptocurrency income per day is constantly decreasing with the constant computing power of the mining farm used.

What is network difficulty in mining?

The concept of mining difficulty most of all concerns cryptocurrencies that use a consensus algorithm PoW, since their probability of finding a block and getting a reward for it is directly proportional to the computing power available to the miner.

The main factors of growth in the complexity of mining

The complexity of mining was introduced into the algorithms for the functioning of such cryptocurrency platforms in connection with the need to ensure the amount of emission of new cryptocurrency units determined by the developers, which appear as a reward for the blocks found.

The size of the issue of new coins depends on two factors:

• the speed at which new blocks appear;
• the amount of remuneration for finding them.

Most blockchains these values ​​are set as constants, although sometimes, to reduce inflation, a periodic decrease in the reward for the blocks found is performed. If you do not impose a restriction on the rate of appearance of new blocks, then the amount of emission of new coins will become uncontrollable and will quickly devalue this cryptocurrency.

Cryptocurrencies are primarily created as a means for making payments, the security of which is ensured by recording information about transactions in interconnected blocks. This is done by miners who calculate the value of the new blocks according to the hashing algorithm applied. The speed of finding the right solution when building a blockchain for a particular cryptocurrency is directly related to the overall hash rate of the network, which is the sum of the computing power of minersconnected to it. The only way to ensure approximately the same time for finding the correct hashes is to constantly adapt the complexity of the calculations performed, because it is not possible to influence the power supplied to the network by miners in a different way in a short period of time. Because of this, in every cryptocurrency blockchain PoW has its own change algorithm the difficulty of finding a share, which directly affects the profitability of mining. As a rule, the average network hash rate is monitored, respectively, with which the computational complexity changes every few blocks.

Based on this, the more miners are engaged in mining the same coin, the more the difficulty of its mining increases and the total number of coins mined by the miner decreases. For example, according to the data bitinfocharts.com, the difficulty of mining bitcoins over the past year has grown by about 7 times.

The following factors have the greatest impact on the increasing complexity of cryptocurrencies with PoW algorithms:

• the emergence of ASICs with significantly higher performance than devices existing before their appearance;
• mass switching of capacities by miners to mine a coin, whose rate has sharply increased;
• artificial increase or decrease in the complexity of the network by developers by making appropriate changes to its program code.

Most often, the network complexity is reduced programmatically, as it was on October 16, 2017 on the Ethereum network, when using a hard fork Byzantium the difficulty of mining has been approximately halved and the reward for the found block has been reduced from five ethers to three. But, if desired, developers can just as easily increase the complexity of mining.

What affects the growth of complexity

The complexity of the network can both grow and decrease, depending on the total hashing power or changes made to the network by the developers. For popular cryptocurrencies, it usually grows, although sometimes, with a significant drop in the value of such coins, powerful miners switch to mining other, more profitable coins to increase profitability, which leads to a drop in the complexity of the network. A similar situation happened with ethereum in early September 2018, when its price dropped significantly and triggered the switch of capacities to other coins, and in some cases even led to the shutdown of equipment in places with a high price of electricity.

The decrease in the complexity of the network leads to the fact that the miner finds more correct solutions during the same period of time when searching for new blocks, which leads to an increase in his income in units of the mined cryptocurrency.

An increase in the complexity of the network leads to a decrease in the number of solutions found per unit of time (often called balls from English shares) and a corresponding decrease in the income of the mined coin.

The difficulty of mining different cryptocurrencies

The popularity of a particular cryptocurrency leads to an increase in miners engaged in its production. This leads to the fact that, with the available constant computing power, mining coins even with the same algorithms brings a different amount of coins earned.

Based on this, sometimes it is more profitable to mine coins that do not have much value, but in larger quantities. In the end, this can bring more benefits than mining an expensive coin, but in small quantities. Naturally, in this case, you need to take into account the current value of the cryptocurrency and possible fluctuations in its price.

Consider a short information about the change in the difficulty of mining the main coins mined by miners:

Analysis of the table shows an increase in the mining complexity of all major coins by 1.3 to 18 times, although the cost of some of them has dropped significantly over this period.

Where to find out the complexity of cryptocurrency mining

When doing mining, you need to take into account the increase in the complexity of the mined coin. This will help to more accurately calculate the income and overall profitability of the mining farm. A forecast of the growth of the complexity of a cryptocurrency, for example, Ethereum, can be made independently by studying its time schedule. The complexity of mining each specific cryptocurrency, as a rule, can be found on its explorer site, where transactions, found blocks and other important network parameters are tracked.

Mining difficulty Zcash presented on the official website of this coin https://explorer.zcha.in in the tab Difficulty.

Mining difficulty Andc and other current parameters of its blockchain are available at http://etherhub.io/stats/difficulty.

Mining difficulty Eth can be studied on the official explorer https://etherscan.io.

Mining difficulty Dash can be studied on the official explorer https://explorer.dash.org/chain/Dash.

Official sites do not always provide the opportunity to graphically study the complexity of mining over a long period of time. The most famous cryptocurrencies can be easily tracked on a Russian-language resource https://bitinfocharts.com/ru, where you can study the graph of the mining difficulty of the selected asset, scale it over the required period of time, and also study a lot of other parameters important for mining and trading.

For a more accurate calculation of the profitability of mining cryptocurrencies, it is necessary to use calculators that take into account the possible change in the complexity of mining. As a rule, these are online pages with built-in programs that automatically calculate mining income for a certain period of time. Depending on the calculator used, the number of parameters entered may vary, but the basic set of important data is approximately the same. To accurately calculate the earnings and profitability of the farm, the following data are usually entered:

• current mining difficulty and forecast of its change;
• hashing speed of existing equipment;
• reward for the found block;
• commission when using the pool;
• cost of equipment;
• consumed electricity and its cost;
• the period of time for which the calculation will be made;
• depreciation of equipment (percentage);
• the rate of the mined cryptocurrency and the forecast of its change.

Quite good calculators that take into account the increasing complexity of mining are presented on the following sites:

• whattomine.com, minethecoin.com – for almost any cryptocurrency;
• bits.media/calculator – for bitcoin and litecoin;
• bitcoincloudmining.center/calculator-mayninga/ – 15 most popular cryptocurrencies.

Mining prospects, taking into account the dynamics of growth of computing power

Due to the fact that the development of technologies constantly leads to the emergence of new, more powerful computing devices, with less power consumption, in the long term, a constant increase in the complexity of mining is natural.

The constant growth of computing power on a global scale has a negative impact on the income of miners who mine cryptocurrencies using the algorithm PoW… The increase in the total network capacity is inversely proportional to the income of each individual owner of the mining farm. The situation is aggravated not only by this, but also by the general drop in capitalization and prices of major cryptocurrencies.

Maintaining a constant level of mining income requires periodic increases in performance, which can only significantly increase with the purchase of new devices. Currently, this is a rather risky business, given the lack of confidence in their payback while maintaining the current position in the cryptocurrency market.

Conclusion, what will happen next

In the future, it is unlikely that mining will again bring such income that it brought in 2013 and 2017, but for now there will be blockchains with a consensus algorithm. PoW, this activity must remain profitable.

The higher the available computing power, the lower the electricity price, the more efficiently used mining programs, the lower the tax pressure and other running costs, the higher the profitability will be.

Given the ongoing regulatory uncertainty, the lack of domestic affordable mining hardware developments, ever-increasing electricity prices and the global cryptocurrency market situation, it is only possible to predict with confidence that mining revenues will decline in the next few months. No one can give an exact answer on how to get around existing and future difficulties in mining.

In the event of a significant increase in the capitalization of the cryptocurrency market, the situation can change dramatically and mining can again become a very profitable activity.

Given that history usually repeats itself cyclically, at the end of 2020 we can expect a repeat of the growth cycle observed in 2016-2017 after the fall of bitcoin in 2014-2015.

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