Bitcoin difficulty saw one of the largest resets recently and this was a result of a 50% plunge in price. However, the statement is not as simple as it seems as the drop in price contributed to a lot of miners operating at a loss, causing them to shut off mining rigs. This would eventually lead to a decrease in hash rate, leading to the difficulty adjusting accordingly.
Even with the above explanation, there is more to it than what meets the eye to the recent difficulty adjustment. In fact, difficulty drops like these have happened often in Bitcoin’s lifespan. A total of 52 drops in difficulty have been witnessed in Bitcoin’s lifespan; off these, there were some that were minor adjustments, while others were major. The following chart shows the three-largest drops, with all the other drops to put things in perspective.
The chart shows difficulty adjustments in terms of percent change, which vary both positively and negatively. The difficulty change on 18 July 2010 was a whopping +300%, the highest positive difficulty adjustment. Albeit fewer in number, there have been negative resets in difficulty as well.
Bitcoin mining difficulty is a way to make sure that the number of Bitcoins being generated [miner reward] remains the same at all times, no matter the total amount of hash rate. The price varies in tandem with the hash rate, difficulty, since the price decides whether miners enter or exit, thereby determining the difficulty. However, the connection between the price and difficulty is a two-way street, meaning, a substantial drop in price could alter the difficulty or an equally substantial drop in difficulty could push the price to react accordingly.
Hence, out of a total of 52 negative drops, only 5 were substantial enough to matter or affect the price of Bitcoin. All of these 5 drops in difficulty ranged higher than 10%. Arranging them based on the extent of the drop, -18.03% was…