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Difficulty Adjustment

The difficulty adjustment is a process that changes the difficulty to ensure that block time is as equal to 10 minutes as possible. Satoshi Nakamoto designed Bitcoin such that block time is to average 10 minutes. Every 2,016 blocks, the Bitcoin protocol runs an algorithm which analyzes how long it took for miners to mine those 2,016 blocks. In theory, 2,016 blocks should take exactly 2 weeks to mine if they are mined every 10 minutes. Any variance off of how much longer or shorter it takes to mine 2,016 blocks is a qualitative measure of difficulty.

The difficulty changes depending on how long the block time was over the past 2,016 blocks (appx. 2 weeks time). If the target was set too low, then the block time will be shorter than 10 minutes and vice versa if the target was set too high. Seen differently, if it took longer than 2 weeks for miners to find 2,016 blocks, then the difficulty will decrease. If it took miners less than 2 weeks, then the difficulty will increase.

The difficulty adjustment is essential for regulating block time, and thus the “printing” or cadence of bitcoin issuance, which dovetails with the block reward.

Difficulty adjustments are also responsible for keeping Bitcoin mining competitive & decentralized. Without difficulty adjustments, it would be too easy for any given miner or mining pool to increase their odds dramatically just by increasing their hash power. With difficulty adjustments in place, adding more hash power means that difficulty increases; it doesn’t guarantee that those with the most hash power will win the block reward more frequently.

In short, the difficulty adjustment maintains the status quo by making the enterprise of bitcoin block mining like a lottery. Without it, those with higher hash power would turn bitcoin mining into a processing race that would promise rewards only to the wealthiest & most powerful bitcoin miners.

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Difficulty Adjustment

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