Litecoin’s halving on Aug. 5 reduced the network’s mining difficulty and hashing power by almost 30 percent. The difficulty dropped from just under 16 million a day before the halving to 11.40 million on Aug. 22, raising questions about security and fee markets on the network.
Litecoin’s halving drastically reduces network mining difficulty
The world’s fifth-largest cryptocurrency by market cap, Litecoin, had its second-ever halving on Aug. 5 and it seems the network hash rate isn’t responding well. The halving is the process of reducing mining rewards that happens roughly every four years, or every 840,000 blocks.
The Aug. 5 halving reduced the reward for mining each block on the Litecoin network from 25 LTC to 12.5 LTC. And while network managed to hold on pretty well for a couple of days after the halving, it took quite a heavy hit this past week.
Data from mining pool operator BTC.com showed that the mining difficulty on the Litecoin network dropped from 15.93 million on Aug. 4, a day before the having, to 11.40 million on Aug. 22. The 28 percent drop was immediately followed by an equal reduction in hashing power.
This is the lowest difficulty the network has seen since the end of April when it hovered around 12 million. According to some estimates, the current difficulty will continue to decline in the next three days, when the next adjustment date is due.
For clarification, in order to keep block-producing intervals every 2.5 minutes, the network’s difficulty automatically adjusts roughly every 4 days or every 2,016 blocks.
Decreased profitability pushes miners out of the network
A reduction in hash rate is followed by a reduction in mining difficulty. As miners leave the network to mine other coins, the average hashing power on the Litecoin network declined from 456 TH/s on Aug. 4 to 326 TH/s on Aug. 22.
This is a clear sign that most miners are struggling with profitability. Data from F2Pool showed that InnoSilicon and FusionSilicon X6, two of the most profitable Litecoin miners, operated with a profit margin between 55 and 60 percent before the halving.
However, the halving brought down their profitability down to just 10 to 20 percent. Some calculations found that with an average power of electricity of $0.04 per kWh, the devices would make less than $0.50 per day.
Smaller miners are expected to leave in even larger numbers, as most of the network hashrate share is held by two large mining pools. Poolin and F2Pool account for 23.64 and 18.54 percent of the network hashrate, respectively.
The reduction in mining hash rate once again emphasizes the importance of a robust fee market on a coin. As mining rewards are reduced over time it’s critical that there are sufficient fees on a network to maintain a high hash rate. Otherwise, these networks run the risk of malicious mining attacks.
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