What is Difficulty?
In cryptocurrency terms, difficulty refers to the degree of effort required to validate or mine a new block on a blockchain network.
Understanding cryptocurrency difficulty
Blockchains that utilizes the Proof-of-Work (PoW) consensus mechanism like Bitcoin require solving complex mathematical puzzles to generate a hash value before a new block is mined. In the early days when Satoshi Nakamoto – the creator of Bitcoin – mined the genesis block, the difficulty was measured as 1, and a regular PC sufficiently completed this task. However, the PoW consensus mechanism is such that the difficulty of mining a block increases or falls depending on the total sum of the hashing power available on the network. Hence, as more miners joined the network, the difficulty gradually increased.
This increased network difficulty ensures blocks are not produced too often and the time interval between mining operations is managed. Today, the average time it takes to mine a block on Bitcoin’s blockchain is 10-mins, after which the miner is rewarded with 6.25 BTC for the computational power (known as hash power) expended in the mining process.
This level of difficulty also hedges the network against malicious intent from the use of ever-increasing computational speeds of dedicated mining hardware known as ASICs. ASICs are used in enterprise scale-mining farms set up in remote locations to generate tremendous amounts of hashing power and hash rate to mine as many blocks as possible on the network for more rewards. As more of this high-powered dedicated hardware is used on the network, so is the degree of difficulty is adjusted.
Today, Bitcoin’s difficulty is continually rising, reaching over 10s of trillions.