Bitcoin mining service and operator, CEX.io, has announced that it will temporarily halt cloud mining activities, owing to the simultaneous effects of dropping Bitcoin prices and rising network difficulty. The move comes after a robust increase in Bitcoin difficulty of 8.2% in the latest difficulty adjustment, even as the bitcoin price has continued to fall and currently trades below $300. CEO of CEX.io, Jeffrey Smith also tweeted about the announcement and has said the move is temporary assuming the price of Bitcoin will rise in the future or the network difficulty would fall sufficiently.
According to blockchain.info’s mining pool data, CEX accounts for about 11% of the entire Bitcoin network’s hashrate. The move may cause a noticeable change in the next Bitcoin difficulty and might also delay transaction confirmations, which are theoretically at a 10 minute interval, but can vary as hash-power is added or removed from the network.
As Bitcoin’s price has fallen below the psychologically important $300 mark, Bitcoin mining is becoming more and more unprofitable, especially with the older ASICs that are not as efficient as the newest technologies. Cloud mining companies need to pay electricity and maintenance costs, which are usually incurred in US Dollars or other fiat local currencies whereas the output from the operation is in Bitcoins. As the value of Bitcoin against the US dollar falls, it becomes less profitable to mine until it reaches a stage where it becomes completely unprofitable.
The move doesn’t affect CEX’s other operations in the cryptocurrency space, notably their exchange platform for trading cryptocurrencies and fiat money. CEX is also reportedly looking for partnerships or other ways to upgrade their mining operations, so that they use more energy-efficient hardware to improve profitability.
Bitcoin network difficulty experienced its first two successive difficulty drops in almost two years late last year. However, the difficulty has again started to rise.
A significant reduction in the amount of hash-power available to the Bitcoin network could delay transactions on the Bitcoin blockchain, since difficulty is adjusted based on past data available to the network. Even though there hasn’t been any large-scale drops in Bitcoin difficulty in the past that have seriously hampered transaction confirmations, such an event has a precedent in the altcoin industry and the results are usually ugly, with difficulty getting the coins on an exchange and slowing down any transactions that need confirmations. Merchants who accept Bitcoin shouldn’t be affected by this, since the payment processors like BitPay allow for zero-confirmation spends.