BITCOIN MINING DIFFICULTY

Bitcoin has a built-in thermostat. Every 2,016 blocks (about two weeks), it checks whether blocks have been coming too fast or too slow. If blocks were found too quickly, meaning more computing power joined, difficulty goes up. If blocks were too slow, difficulty goes down. It is automatic and elegant.

Over Bitcoin's lifetime, difficulty has almost exclusively gone up. That is because the mining industry keeps growing. Better hardware, cheaper electricity, more investment, year after year. Downward changes are rare and meaningful. The biggest drops happened during the 2018 downturn, the 2021 China mining ban, and after halvings, when weaker miners couldn't compete with reduced rewards. These moments of miner stress have often lined up with market bottoms.

Difficulty drops are rare and they matter. They mean blocks have been coming slower than target, which implies enough mining power has gone quiet to slow block production. A single drop can be noise. Equipment cycles, seasonal power changes, that sort of thing. But two or three in a row is a genuine sign that mining capacity is under sustained pressure.

This is a slow signal. It only updates every two weeks and reacts to changes that already happened. But that simplicity is also its strength: a sustained run of increases confirms the network is healthy, while a string of drops confirms miners are hurting.