What is Difficulty Adjustment?

 By: Anderson Colburn

Difficulty adjustment is one of the many innovative technologies that Satoshi Nakamoto introduced through Bitcoin. Dr. Saifedean Ammous describes it as “the glue that holds Bitcoin together,” but what exactly is difficulty adjustment, and why is it so crucial to Bitcoin functioning? Difficulty refers to the amount of computational power required to solve a block and add it to the block chain. The difficulty adjusts as the total computational power, or energy used by miners, fluctuates over time.

Hash rate refers to the speed at which a miner can solve complex mathematical problems to upload new blocks to the Bitcoin blockchain. It represents each miner's computational power in securing the network by adding blocks to the chain.

To maintain the target hash rate of one block every 10 minutes, Bitcoin’s software automatically adjusts the difficulty level based on the collective computational power of all miners. As the number of miners rises, so does the difficulty score and vice versa.

The target hash rate was set at the conception of Bitcoin to promote stability and long-term success. If this innovation was not introduced, the variability in the number of miners hashing blocks would change the rate that each block is implemented onto the chain. To better understand the importance of difficulty adjustment, consider what would happen if it had never been introduced.

If difficulty adjustment didn’t exist, Bitcoin would face both short-term and long-term effects that would destabilize the network. As more miners join the network, the average time required to complete a block would decrease. This acceleration would lead to an excessive number of blocks being created in a short period, causing the blockchain to grow exponentially. In the long-term, the network would be overwhelmed as the average block creation time logarithmically trends towards zero. Miners could create new blocks easily and rapidly, making mining highly profitable regardless of energy costs. This would reduce the scarcity of mining and undermine the decentralization of Bitcoin’s energy use. The biggest risk would be the centralization of mining. The decentralized nature of Bitcoin would erode, giving rise to large-scale mining operations that dominate the network with the most computing power, making it increasingly difficult for smaller, independent, miners to participate in mining.

Main Takeaways

• The absence of a difficulty adjustment mechanism would lead to an unsustainable and insecure Bitcoin network.

• The rapid block creation and ease of mining would ultimately result in centralization and vulnerability to many types of attacks, including 51% attacks.

Fun Fact

The difficulty changes every 2016 blocks based on the time it took to discover the previous 2016 blocks. If the average hash rate is 10 minutes per block, finding 2016 blocks would take exactly 2 weeks: 6 blocks/hour × 24 hours/day × 14 days = 2016 blocks 

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Bitcoin Difficulty. All about cryptocurrency - BitcoinWiki. (n.d.). BitcoinWiki. https://bitcoinwiki.org/wiki/difficulty-in-mining

What would happen if mining difficulty would be decreased to almost nothing? (n.d.). Bitcoin Stack Exchange. https://bitcoin.stackexchange.com/questions/103770/what-would-happen-if-mining-difficulty-would-be-decreased-to-almost-nothing

Ray, K. (2024, May 2). Diving into bitcoin’s difficulty adjustment. Forbes. https://www.forbes.com/sites/digital-assets/2024/04/23/diving-into-bitcoins-difficulty-adjustment/