Thread by @saifedean

The next bitcoin difficulty adjustment will happen around July 1, and will likely be the largest downward adjustment in bitcoin's history, around -19%.

The previous largest downward adjustment was -18.03% in 2011.

diff.cryptothis.com

We've had years of news reports about China banning bitcoin, so skepticism of the latest ban was justified, but it is clear now that mining in China has been massively disrupted. Network hashrate has dropped ~40% from 180 TH/s to 107 TH/s.

blockchain.com/charts/hash-ra…

Make no mistake, this was a devastating blow for Chinese bitcoin miners. They'll have to incur massive costs to transfer their miners abroad & run them again. The miners' secondary market is so overwhelmed with supply that producers suspended new sales
reuters.com/business/china…

For years we've heard people say bitcoin is vulnerable to Chinese control because of miner concentration in China. We now see the impact of China banning bitcoin mining, and so far, it is a price crash & a few weeks of slower blocks, thanks to bitcoin's difficulty adjustment.

As hashrate declines, blocks take longer. But every 2 weeks, difficulty adjusts, & when blocks are slow, it adjusts downward, so blocks start clearing faster.
It may take many weeks for this adjustment to complete, but blocks will go back to clearing at ~10 minutes.

What happens if more countries ban mining? More hashrate will go off the network, blocks will take longer, and difficulty will adjust downward until blocks clear on time.

The ban has also undoubtedly played a big role in the recent price crash. These miners obviously hold a lot of bitcoin, and dismantling or relocating their business will require them to sell a significant amount of coins they'd otherwise have held, crashing the price.

This was a gift from the CCP to the rest of the world's miners. Chinese miners' loss is the gain of the rest of the world's miners, whose machines now form a larger part of the hashrate, allowing them bigger profits.

The more miners are taken off the network, the more profitable the remaining miners become. Banning bitcoin mining somewhere just increases the incentive to mine it everywhere else. Difficulty adjusts & blocks go back to clearing quickly with remaining miners better capitalized.

Bitcoin mining can be performed anywhere with electricity, and it doesn't need to be connected to any infrastructure, it just needs an internet connection. Stricter bans would heavily finance the growth of undercover mining worldwide.

Mining hashrate could decline significantly, but difficulty would just adjust downward the network would clear blocks, and the remaining miners would become much more profitable, having to sell fewer coins, spurring the price upward, incentivizing more mining.

Difficulty adjustment is the magic sauce that makes bitcoin work.

It means that bitcoin mining grows & shrinks to the size it needs to survive & keep blocks clearing.