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Bitcoin Hash Rate is Increasing Quickly

Introduction

For anyone that has been following the Bitcoin or other crypto currency scene, it should be pretty apparent that technology is moving pretty quick. People often try to relate where Bitcoin is now to its start back multiple years ago, but really it did not kick in to full gear (mining wise) until long after that. Now we are finally in to the age of ASIC's, really changing the game in terms of how the Bitcoin mining scene works. What I want to do through this article is help understand why the hash rate is increasing at a massive rate, and why it is a problem for current miners. I will be leaving the buying advice for a future article; for now I just want to look at the current situation and what we are looking forward to in the near future.

Progression in Technology

Bitcoins started out being mined on CPU's. Later on, it was possible to do this with GPU's. After this came FPGA's, and now we are in the age of ASIC's. Each one of these is essentially a tier where two things happened: the hash rate increased significantly and the cost of mining went down significantly. For example, there are ASIC's, like the block eruptor, that hash at half the speed of an HD 7950 but use almost no power. It is things like this that help increase the efficiency of mining.

One problem we have not passed yet is the idea of ASIC's with multiple purposes. For example, you can use your CPU for running other programs. You can use your video card for gaming or video rendering. You can not, however, use one of the FPGA's or ASIC's for anything other than mining Bitcoins (or other coins that utilize the same exact hashing mechanism). Regardless, mining Bitcoins both has its value in direct earnings and the ability to help support and strengthen the entire network. For people investing in them, this is more than enough of a benefit to keep them going.

Hash Rate Increases

As we have seen, the Bitcoin network's hash rate has been going up pretty much constantly. As of right now, it is increasing at a rate of around 20% per month. It is important, however, to realize that this is compounded. As such, here is a short example of how the increases will look once we hit 100 million:

  • 100 million
  • 120 million
  • 144 million
  • 172.8 million

As you can easily see, the jump starts going up at a very fast rate, and will only increase from there. Some people have the feeling that it will drop off shortly because only so many ASIC's can be produced and sent out, but we are a long way off before that becomes an issue. We still have multiple new companies jumping in to the game to take their piece of the pie, and the existing ASIC developers are finally getting the ball rolling on production. If anything, what we are about to start experiencing is an increase of hash rate that goes above and beyond the 20% per month we are currently used to.

Bitcoin Production Effects

A fear a lot of people seem to have is that Bitcoin production will rise as a result of the increasing hash rates. This is something that is simply not going to happen; the rate is static, regardless as to if there is a single CPU miner or millions of ASIC's. The difficulty is what determines how long a block takes to be found, and since that is adjusted as the hash rates go up and down, there is nothing to worry about there.

There is the argument that in between difficulty retargets the blocks can be found at a higher or slower rate than they should be, but I think the effects of that are pretty much negated since the retarget will end up happening anyways and will set everything straight. In any case, there are only a finite amount of coins being produced, so past that no new ones will be made.

Overall, the effect that will occur on the Bitcoin production rate is minimal. The bigger fear is the sway of Bitcoins being mined by many entities towards being mined by one. For example, let us say that the entire network is at 100 GH/s. A new contender comes in with their ASIC's and match that to bring it up to 200 GH/s. The single person will be taking approximately half of the Bitcoins produced, while all of the rest of the miners will get the other half shared between them. This leads to a much bigger chance of “pump n dumps” or even just straight up dumps, as the person with half of the hash rate has a very big chance of earning more than they want to hold.

The Future Plateau

At some point we will undoubtedly hit a plateau in difficulty. How long it will take to get that far, though, is not known. At some point it does have to happen because there can only be so much hash rate, and as it goes up, the amount it takes to increase the difficulty will rise as well. For example:

  • Assume there is 100 MH/s and the difficulty is 4
  • Bob brings another 100 MH/s. Now the difficulty is 8
  • John brings 100 MH/s. Now the difficulty is 12

The difficulty increases at a slower rate as time goes on, even while bringing out the same hash rate. In the first addition, it increased by 100%. The second was only by 50%. The next one would be by less than that, and it would continue shrinking until at some point the hash rate increase has a negligible effect on the difficulty of mining the coins.

The reason why it is so hard to determine when this plateau is going to happen is because there are tons of more and more high powered ASIC's hitting the market and being designed right now. Until they hit a point where the hash rate is as high as people think it can reasonably get, there is no telling how much it is going to increase per device, and therefore you can not guess how much the total hash rate will be increasing either. As of how quick things have been moving so far, the difficulty is set to continue rising for the medium term.

Effects On Other Coins

While Bitcoin hashing is the one that is growing at the fastest rate, the different alt coins are also growing. As GPU mining becomes less and less viable for Bitcoins, miners will continue moving all of their GPU rigs to Scrypt coins. As this happens, it effectively increases the overall hash rate of all coins, rather than just Bitcoins.

At some point it will get to where Bitcion is so unprofitable for GPU's (in that the electricity costs way more that is earned from mining) that almost all GPU's will end up being moved over. We are still not quite to that point yet, although we are pretty much borderline right now. Once this happens, we should see a massive spike in alt coin difficulties.

Conclusion

If you are looking in to joining the Bitcoin scene, it is suggested that you follow it for a while first. Keep up with the coins you are most interested in, and watch them over a period of a couple weeks to see what is happening with them. You may find that while you thought they are profitable right now, jumping in at this point is a bad idea. Or you could find that the opposite is true! Either way, you will want to treat the Bitcoin scene like any other investment: learn as much as you can before you dive in and you will save a lot of headaches! This is especially true with Bitcoin and its rapidly increasing difficulties, and it looks like it is going to be increasing even faster over the short term.

Mining


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