The main advantage of cryptocurrency platforms over fiat money is their decentralization. The Ethereum digital coin is used not only for making payments but also for concluding transactions on the principle of smart contacts, so its demand has grown dramatically lately. This situation affects the difficulty of Ethereum and the level of profitability of its mining.
Why Coin Mining Difficulty Changes?
Ethereum miners notice that their earnings are decreasing, and it takes longer and longer to mine each block. To maintain the same level, you have to invest a lot of money in new equipment with higher performance. Let’s figure out what the difficulty of mining ETH depends on.
The difficulty of Ethereum mining as well as the level of earnings depends on several factors:
- the number of miners connected to the platform, which affects the network’s hashrate;
- the time during which a cryptographic puzzle is solved, that is, one block is mined;
- change of the applied mining algorithm;
- cryptocurrency rate, determined by the current exchange quotes;
- the cost of electricity;
- the computing power of the equipment used for mining.
Why Is ETH Mining Difficulty Growing?
Now let’s answer why the difficulty of Ethereum mining is growing? The platform developers have created an algorithm that regulates the standard confirmation time for one block. If the number of miners increases, then the block is mined too quickly. This problem is solved by increasing the complexity of a cryptographic puzzle, leading the time to a given standard. In the opposite situation, when the hashrate is insufficient, then the confirmation of the block takes longer. In this case, the difficulty of ETH mining decreases.
Such changes in Ethereum mining difficulty negatively affect users who bought high-cost hardware (ASIC systems, modern graphics cards). The increased difficulty decreases the reward, so the payback period of investment increases significantly. The difficulty level is changed every thousand blocks based on the analysis of the network operation.
Sometimes miners end up earning almost nothing as their profit is completely eaten up by paying electricity bills. In such situations, the strongest survive, who can wait for the moment when weaker miners go to other networks, and the difficulty of Ethereum mining will decrease.
Ethereum Difficulty Prediction 2021
The entire history of fluctuations of this indicator is available on the Internet, and it is enough to analyze the online mining difficulty chart below.
In 2021, the Ethereum mining difficulty reached new levels, updating its historical maximum. This is primarily due to the increase in ETH value, which reached $2,000 in February 2021. Therefore, we can expect that the mining difficulty of the second-largest cryptocurrency will set new all-time highs.
Therefore, it makes sense to mine ETH until the beginning of the exponential growth of difficulty if the hardware still allows it. It is definitely inappropriate to buy expensive devices specifically for Ethereum mining at the moment. Likely, that in the near future, developers will finally switch to full-fledged Ethereum 2.0, which will work on the PoS consensus algorithm.
However, there are also opinions that it will be possible to mine Ethereum on graphics cards for at least several more years because the developers are constantly delaying the launch of Ethereum 2.0. But here, everything is not so simple as well, since this niche is occupied by large players, especially after the ETH price has risen to $2,000.
What Is Ethereum Difficulty Bomb?
In creating the Ethereum network, its team developed a mechanism for complicating the coin’s mining called a difficulty bomb. So, what is Ethereum difficulty bomb? The coordinator for Ethereum’s protocol developers, Tim Beiko, said:
It’s a mechanism in Ethereum that makes it exponentially harder to mine. It’s like we’re artificially adding miners on the network, which raises the difficulty, making it harder for every other miner that’s on the network to actually mine a block.
Thus, the Ethereum difficulty bomb is needed to make it less profitable for miners to mine blocks using Proof of Work, and they tend to switch to Proof of Stake.
In other words, Ethereum’s difficulty bomb is a deterrent for miners who want to continue working with the PoW chain even after blockchain switches to PoS. If all miners do not switch to Proof of Stake, there is a risk that the Ethereum blockchain could split.
A similar situation took place in 2017 when Bitcoin miners split their blockchain, resulting in Bitcoin Cash. However, Ethereum founders foresaw this possibility and programmed the blockchain to increase the difficulty levels for the Ethash mining algorithm.
The whole point of the difficulty bomb was to encourage miners to switch to PoS. ETH difficulty bomb is still needed to maintain a balance in the network and the further viability of the project.
Still, another question frequently arises — how long will developers delay the transition to PoS? If the developers were serious about implementing the project roadmap, the need for constant transfers of activation of the Ethereum mining difficulty bomb would disappear by itself.