How Does Difficulty Affect a Miner’s Profitability?
Mining difficulty is a measure of how hard it is to find a new block. As difficulty increases, miners require more computational power (hash rate) to find a block and earn the block reward.
This means a miner's share of the total block rewards decreases for the same amount of hashing power. Higher difficulty directly reduces the expected number of coins a miner will earn over time.
Consequently, operating costs like electricity and hardware amortization become a larger percentage of the reduced revenue, decreasing profitability.
Glossar
Operating Costs
Component ⎊ For cryptocurrency miners, the primary components of operating costs are electricity consumption, which is a variable cost, and the ongoing maintenance and cooling of the mining hardware.
Hardware Amortization
Calculation ⎊ Hardware amortization represents the systematic accounting process of expensing the capital cost of specialized mining equipment, such as ASICs or GPUs, over its estimated useful economic life.
Computational Power
Algorithm ⎊ Computational power, within cryptocurrency, options trading, and financial derivatives, fundamentally represents the processing capacity dedicated to executing complex calculations essential for network operation and trade execution.
Cryptocurrency Price
Valuation ⎊ The Cryptocurrency Price represents the instantaneous market consensus of a digital asset's value, typically quoted against a fiat currency or another major cryptocurrency on a trading exchange.