We will devote this publication to the issue of increasing the complexity of mining. The production of cryptocurrency has become more problematic lately – users are worried that the cryptocurrency will be soon unavailable. Therefore, we will consider the complexity of this process, as well as the factors that influence its increase.
For what purpose was introduced the complexity of cryptocurrency mining
The concept of mining is the generation, or calculation, of new blocks within the Blockchain framework. For the disclosure of new blocks, the miner needs to perform mathematical calculations using specialized capacities. As a reward, the user receives a certain amount of digital tokens.
At the same time, each cryptocurrency product is characterized by a deflationary character – this means that the overall indicators of coin emission cannot be higher than the value that the developers put in the source code. For each altcoin this value is individual, and its presence suggests the need to control the rate of extraction of the digital currency. If users will be able to unlimited mining, then the emission indicators will be uncontrollable. The main tool for managing the production of tokens is the complexity of mining.
Using the complexity of mining is the operation of the Blockchain network parameter, showing the level of complexity of performing mathematical calculations to generate a new block, which allows the user to receive a reward. The developers of cryptocurrency products have the opportunity to control the emission of tokens: at slow rates of production, the complexity decreases, and at excessively high – it becomes higher.
Factors affecting the complexity of mining
The complexity of mining depends on several factors, including the main ones:
- Network hashrate – indicators of the total processing capacity of equipment for the cryptocurrency production;
- Time is the period in which the new block is opened.
In fact, these parameters are in close relationship. The growth of the hash indicates the increase in the user audience, which currently mines the specific token – the capacity indicators are growing and the time required to generate the blocks is reduced. So, we conclude that:
- With the growth of the hashrate, the number of miners increases and the time taken to extract the block decreases;
- With a decrease in the hashrate, the number of users who mine token decreases, which leads to a decrease in complexity.
Calculation of the level of complexity of the cryptocurrency production is carried out using complex formulas. For the mathematical substantiation of the operation of this parameter, we can consider the equation for the block generation time in the Blockchain: B = C / X. Here B is the time of generation of the block in the equivalent seconds, C is the complexity level of extraction in the hash equivalent per second, and X is the network hash rate indicators in the hash equivalent. In this case, the level of basic complexity is equal to one.
Based on this equation, it becomes clear that the relationship between hashrate and time has a mathematical justification. In this case, the system “adjusts” the level of complexity of mining for the possibility of executing the basic equation.
The degree of complexity of mining cannot be identical for different cryptocurrencies. Its performance depends on the time of generation of blocks in the network, as well as on the indicators of the system hashrate. Even when the time factor is constant, a hashrate is characterized by the dynamics – as it changes, the complexity indicators also change.
First and foremost, the popularity of the cryptocurrency product, or rather, its price in the digital assets market, influences the indicators of the hashrate. The higher the token’s popularity level, the higher its value and the more public interest in the product. Users use their power for mining, which contributes to the growth of the hashrate and the change in the complexity of production.
The level of complexity of extraction of various cryptocurrencies
For any cryptocurrency product, whose mining is available to users, it is possible to calculate the complexity of production. The information could be found on the official sites of altcoins. Similar data also provides specialized aggregator resources that calculate statistics on digital assets in real-time conditions.
Given the dynamic nature of the hashrate, the data cannot be completely accurate. Experts recommend using information provided by various sources, and calculate the average on its basis.
A large number of miners use analytical summaries, which are presented, for example, on the site https://www.coinwarz.com/charts/difficulty-charts for users of the territory of the CIS countries, and an optimized and service-oriented service for Russian-speaking users – https://bitinfocharts.com/ru/. Here you can also find the data of daily dynamics of the level of complexity of the cryptocurrency extraction.
If we analyze the leading altcoins in the digital market, then we can identify some patterns:
- A large number of miners speaks about the increased complexity of the production of the token;
- The reduction in the complexity of mining can be observed with a fall in the market price of a cryptocurrency asset, and an increase – with the growth of its value.
The effect of mining complexity level
The main indicator influenced by the complexity of mining is profitability. It is logical that with increasing complexity of the production of the token, the level of profitability is significantly reduced, since the power is consumed, and the result does not justify the expectation. In addition, the level of complexity is inversely proportional to the number of profit users are involved in the mining process.
The situation described suggests that the use of the same capacity for the extraction of digital assets can bring a different income. As an example, you can take the Antminer S7, which in July 2017 “gave out” to 0.06 Bitcoin-tokens a month to its owner. By November, the level of complexity has doubled, and profits, respectively, decreased by the same amount. After 4 months, the income from using this ASIC was exactly half the initial result.
The forecasts are not as depressing as it might seem. Increasing the complexity of the cryptocurrency production can be compensated for by the growth of the value of digital assets. A good example is a situation with Bitcoin. The BTS profitability indicators have halved since mid-summer as of November, but the market value of the BTS token has grown more than threefold – this indicates that even with the increasing complexity of Bitcoin mining, the new owners of assets in the equivalent of this altcoin could be enriched due to the growth in its price in relation to fiat money.
Although experts only talk about the indirect link between mining and the market price of assets but the increase in complexity indicates that the token is growing in popularity – this can not be denied. This means that the user audience of the cryptocurrency product is growing rapidly and is sending more and more volumes of capacity for its production. The jump in popularity of the digital asset indicates an inevitable rise in the price of the coin.
We draw from this conclusion that the growing interest of the user audience to the token affects both the increase in the level of complexity of production and the increase in its market price.
Projections for the level of complexity of mining cryptocurrency
According to experts of the digital assets market, the indicators of the complexity of the leading altcoins grow by 8 percent every month. This also speaks about the proportional decrease in the profitability of mining.
This factor is fundamental when considering the profitability of mining in the future. Some experts are of the opinion that the production of cryptocurrency in the near future will be irrational. If we take statistical calculations, then at an 8% increase in the level of complexity in the context of one month, the profitability of the mining capacities will almost close to zero after 9 months.
Along with this, a large number of miners are confident in the regular increase in the cryptocurrency rate and the complexity of extraction, which allows you to balance profitability.
In any case, starting with the mining of digital tokens with high rates of complexity does not make sense.
Users either have to purchase expensive capacities for the extraction of coins or engage in the mining of tokens with low rates of complexity. The first is expensive and unreliable, the second is risky enough. The optimal option is the “golden mean”, namely the mining of tokens with an average level of complexity. Owners of maximum rewards can only be those users who were the first to get tokens.