Difficulty Level

Introduction

Difficulty level is a measure of how hard it is to find a hash below a given target threshold (a 256-bit number that a hashed block header must be less than or equal to in order for a new block to be awarded). In the cryptocurrency mining process difficulty level is used to keep the average time between blocks steady given fluctuations in a network’s total hash power, increasing hardware speeds and varying interest in running nodes over time. The end result, from an economic perspective, it is that difficulty level adjustments make the mining process more or less competitive as miners join and leave the network according to their expected profit from block rewards. In other words the higher the difficulty, the more hash functions miners will need to compute to solve the cryptographic puzzle needed to create a new block and receive a block reward.

In Bitcoin, difficulty level is adjusted automatically every 2,016 blocks based on the time it took to discover the 2,016 previous blocks determined by a moving average targeting an average number of blocks per hour. The 2,016 blocks number is based upon the intended scenario where if a block is found every 10 minutes it will take exactly two weeks to find 2,016 blocks. If blocks are generated too slow, the difficulty decreases, if blocks are generated too fast, the difficulty increases. Since difficulty level is a lagging metric derived from past hash power contributed to a network, throughout Bitcoin’s history block times have averaged less than 10 minutes as hash power has continued to increase rapidly since Bitcoin’s inception leaving the difficulty level constantly adjusting upwards to compensate for the increased hash power.

Suggested Reading

Bitcoin’s Difficulty Target and Adjustment by Brian Curran

Bitcoin Mining Difficulty Levelby Gautham

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