How is cryptocurrency difficulty caused?

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A Bitcoin is defined by the digitally signed record of its transactions, starting with its creation. The block is an encrypted hash proof of work, created in a compute-intensive process. Miners use software that accesses their processing capacity to solve transaction-related algorithms . In return, they are awarded a certain number of Bitcoins per block. The block chain prevents attempts to spend a Bitcoin more than once — otherwise the digital currency could be counterfeited by copy and paste.The difficulty of mining does not influence the price. It is the other way around. No matter how much hashing power is thrown at the network, the supply of newly minted bitcoins does not vary much from the schedule set by Satoshi. Mining does not influence demand for bitcoins either.

Bitcoin difficulty is an estimate about how difficult it is to mine (find) a new bitcoinblock. Bitcoin mining has two main purposes. One is adding transactions to the bitcoin block chain. The other purpose is to create new bitcoins. The total number of bitcoins that will ever be mined is limited to 21 million.bitcoin mining is one of the fastest growing sectors in information technology (IT) today. More computers are being added to the task all the time. As the blockchain grows, more bitcoin are added to the ones already in circulation. Over time, the rate at which new bitcoin are added is scheduled to slow down, until bitcoin mining is performed exclusively for the transaction processing fees when the system maxes out at 21 million total coins in circulation.

After the 2016, the award for computing  bitcoin block drops from 25 to 12.5.

A large portion of Bitcoin mining is now cloud-based. Firms have been selling gigahashes per second, or Gh/s, for a fee, that provides enough computing power to make a billion attempts a second to solve the hash function for a bitcoin block. Genesis Mining, for example, charges $902 for one thousand Gh/s, plus a fee for electricity. If you happen to earn enough bitcoin from the 12.5 bitcoin created in each block, plus transaction fees, to surpass these fees, then renting the gigahashes was a good choice. Of course, given the enormous amount of computing power in competition with you, you should probably view the investment as speculative rather than as a sure thing.

Bitcoin mining is energy intensive, so huge mining operations tend to locate where it is easy to keep machines cool or where energy is very cheap. Cheap coal in Mongolia seems to be stimulating bitcoin mining in that country.  Unfortunately, not every bitcoin mining company has found a way to remain profitable.  Last year, Ghash.io, one of the largest mining operations, announced that it would be suspending service until Bitcoin’s value increased, or mining difficulty decreased, enough to make Bitcoin mining profitable for them.

 

Price follows supply and demand. While it is true that the supply is the same it is more costly to extract while the demand is ever increasing and unless sufficient enough miners quit the price will go up.I feel that difficulty follows directly demand and the higher it is the more the supply is spread thinly – how can we expect the price not to move accordingly?It usually does then it goes beyond the needs because of speculation to then crash and realign.The bitcoin protocol currently can only process seven transactions a second, because of the 1 megabyte limit on blocksize, which is tiny compared to, say, Visa, which handles up to 10,000 transactions per second. However, of course, the fee for each transaction is significant, especially for merchants who bear the brunt of the credit card processing fees. A recent transfer of tens of millions of dollars worth of bitcoin was recorded on the blockchain for a fee of about two cents.

So, at the conclusion- difficulty has nothing to do with drop in bitcoin volume. Difficulty depends of the hashing power added to the bitcoin network. It is defined that btc block is generated by btc network every 10 minutes. so in 14 days theoretically it is generated 2016 blocks. but since we adding more and more hashing power to mine bitcoins we are mining block to fast. so instead of mining 2016 blocks in 14 days we are mining them in 12-13 days. and every 2016 block btc network is rising difficulty and trying to stretch mining of 2016 blocks to 14 days or 1 block every 10 minutes.

so only way to lower down difficulty is to stop adding more hash power and to power off let’s say couple of hundreds TH miners. point is to mine 2016 blocks in 15-16 or more days so after 2016th block difficulty will drop down.

See also:-

Will the Bitcoin price go up? How high will Bitcoin go?

CEX.IO Bitcoin Exchange

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