Crypto-currency Mining Checklist Part II
Difficulty
Continuing from Part I, another very important factor to consider before diving head first into Bitcoin mining is a network statistic called Difficulty. The Difficulty refers to how difficult it is in finding or processing a hash function or 'mining a block.' The Bitcoin Network difficulty is re-assessed every time 2016 Blocks are found. The Bitcoin program was designed so that Blocks are found on average every 10 minutes. So if after 2016 Blocks it is taking the Bitcoin Miners 20 minutes on average to find a block, then the Bitcoin software will re-adjust the Difficulty to make it easier for the Miners to find Blocks or solve those hash functions. If it averages less than 10 minutes, say 5 minutes to find a block on average, then the Difficulty will re-adjust, making it much harder to find Blocks until the average becomes 10 minutes again repeating the cycle every time 2016 blocks are mined.
Difficulty is important to be aware of as a 'Bitcoin Miner' because this is another indicator of where the Bitcoin Network is headed. Using the Blockchain.info's Difficulty chart at the 1 year mark, we can see that between July '16 to end of December '16, Difficulty increased by 50%. Using the same chart, we can see that the Difficulty increased well over 120% from January '17 -June '17, with a noticeably huge jump in Difficulty on June 2, 2017. This could mean a few things. One that either old Bitcoin miners were turned on or returned to Bitcoin mining and/or new Bitcoin Mining hardware was released. This sudden rise could also be affected by a sudden spike up in Bitcoin price, causing miners to return to Bitcoin mining or start up miners that were no longer profitable but now are due to higher price. This is much like when Gold reaches a certain price level, and miners will either pick up production when Gold prices are up, but if Gold prices are down, they will shut down production because they don't make money at lower Gold price levels.
My strategy with cloud mining was to start the mining right after a difficulty change since it will buy me about 2016 Blocks (about 10 days) before the next difficulty change, which is generally going up and hardly ever down. Since the Difficulty increase before last was actually quite large, I am hoping that the next changes will not be as large. I do not see any new ASIC chips or new technology being released any time soon. For now it will be mostly Bitmain supplying the miners that the market demands, and this is likely to be affected by the price trend of Bitcoin.
Link Referrals
I have only recently started mining on Genesis-mining and have not gone through a Difficulty change yet, so my calculations to projected profitability have not changed but are not guaranteed either due to the changing variables in the Bitcoin Network. Another variable that will affect profitability in a positive way is the referral rewards program that Genesis-Mining has for its users. It is a tiered system so that as more users sign up using your referral link, the bigger the reward, which can be received in Bitcoin or in increased hashing power for your mining operation. I have had several mention that they used my referral code or link, but I have officially only received credit for one, which gave me a very small increase in hashing power. When using someone's code when I signed up, the code did not take at first. I had to try to use the code several times until it took, so be sure it is showing you your discount before processing the payment. I am not endorsing cloud mining just yet, but it is has been interesting so far.
Let me know if any of you have questions or other input on this topic.
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