Introducing the Rolling-Block Method: A New Way to Forecast Bitcoin Mining Difficulty

Since the inception of bitcoin, the network Difficulty 1 to the 48.71 trillion hashes a miner would theoretically need to generate to find a winning one. This means that it is 48.71 trillion times harder to mine a bitcoin block today than it was when mining first began in 2009 – a compound growth of 20.64% per month.

At the time of this writing, bitcoin’s difficulty is at an all-time high, meaning miners – on a BTC basis – are making less in reward per unit of hash rate than ever before. Next to bitcoin price, bitcoin difficulty is a primary factor that affects hash value ,hash rate per unit mining revenue), so miners are interested in introducing bitcoin hash rate Trends of growth and difficulty for the business plan.

To this end, miners and bitcoiners devised a constant-block-time method to estimate upcoming adjustments, but this method usually turns the difficulty higher or lower than anticipated at the start of each difficulty epoch.

To improve upon this, the team at Luxor Technologies developed a new method called the “rolling-block method”, which we will describe in more detail later in this article. A recent report on bitcoin mining difficulty prediction.

It is our hope that the rolling-block method for predicting bitcoin difficulty can provide miners, investors, and hash rate traders with a better tool for planning difficulty changes.

Luxor’s ‘rolling block method’ for forecasting difficulty adjustments

For this report, we develop a new time series forecasting method for subsequent difficulty adjustments, which improves accuracy at the beginning of the epoch compared to the continuous block time method. We refer to it for short as the designated “rolling-2,015-block, square-root-weighted, epoch-adjusted block timing method” (or just “rolling-block method,” “adjusted-block-timing method,” or “dual-“. era method”).

This new method improves upon the continuous-block-time method at the start of the epoch by including block times from the past 2,015 blocks, instead of only blocks from the current epoch, which can skew epoch-early predictions due to a lack of data points. Is. To account for changes in network difficulty between epochs, block times in previous epochs are adjusted by previous adjustments. And finally, we weight the average block time of the current epoch with the square of the ratio through the epoch. This last step is to reduce the effect of block times from previous epochs as the current epoch progresses since these values ​​do not actually determine subsequent adjustments.

In the chart below, we can see via the confidence intervals that the new method performed better than the old model at the beginning of the epoch up to block 650, but slightly worse after that:

Of course, this forecast is only to present the next difficulty adjustment. What if we want to forecast one year in the future?

Long term bitcoin mining difficulty forecast

Luxor develops models for long-term hardship forecastingAlso, but these models are obviously more complex, as they span a longer time frame.

Our model takes bitcoin price, transaction fees and block subsidies as inputs on the demand side, and internal data on ASIC production estimates and operating cost distributions across the industry on the supply side. Using these inputs, the model produces an equilibrium hash rate, difficulty, and hash value for an 18-month period.

Model structure reflects reality; Hash rate, difficulty and hash value are endogenous to the system, not exogenous determinants of each other. We can also do sensitivity analysis with the model across all inputs. For example, we can predict an equilibrium hash rate, difficulty, and hashrate over a range of bitcoin prices.

The charts below show current estimates from our updated hash rate supply and demand model. It provides projections for flat, bull and bear bitcoin price scenarios.

Hash Rate, Difficulty and Hash Price Projection Update

Hash rate is an emerging asset class and digital commodity market. Hash rate market participants such as bitcoin miners, hosters, lenders, investors and traders require access to the rigorous economic analysis and data available in other commodity markets.

Luxor will commit to providing this analysis and forecast on a quarterly basis. If you want to know more, please Visit this post.

This is a guest post by Colin Harper. The opinions expressed are solely his own and do not necessarily reflect those of BTC Inc. or Bitcoin Magazine.