What is Mining Difficulty?

Mining difficulty is a metric to show how “hard” or time-consuming it is for a mining pool, miner, or operator to solve a cryptographic puzzle—that is mine, confirming that the content of a block is valid within a pre-programmed period. Often, mining difficulty is associated with computing power. The more difficult it is to mine—or solve a cryptographic puzzle—the more computing power it requires for the mining pool or node operator to dispense.

Why Is Cryptocurrency Mined?

Fiat currencies rely on printing. Central Banks like the Federal Reserve or the European Central Bank can always churn out more paper.

For cryptocurrencies, there is an inherent problem. Remember the part where no central entity was supposed to control issuance? Yeah, the option of having a central institution issue crypto is not possible. Therefore, Satoshi Nakamoto created a self-sustaining system of issuing new coins.

Powerful computers help secure the network by confirming transactions, and they get new coins issued for successful blocks added to the blockchain. That process is called mining, and it is an indispensable aspect of decentralization.

Proof-of-Work and Mining Difficulty

The proof-of-work consensus system is a system of block confirmation where participants are forced to expend a utility, in this case, energy and computing power, to secure the network and dissuade bad actors from taking part in the system, causing destabilization through invalid transactions. Blockchain networks using the proof-of-work consensus algorithms depend on the global community of miners for network security and decentralization. Typically, the more miners—or mining pools—the more decentralized and robust the network becomes.

In Bitcoin, a single miner cannot solve a cryptographic puzzle and earn block rewards. Usually, different miners combine forces in mining pools and compete with others, including specialized mining farms, in brute force, for the right to confirm a block.

Since the Bitcoin network is automated without an intermediary to determine which pool or farm can mine and earn rewards, a default algorithm continuously adjusts the mining difficulty depending on the total computing power (also known as hash rate) dedicated to the network. The higher the computing power, the higher the mining difficulty, and therefore, the harder it becomes to mine a Bitcoin block within the stipulated 10 minutes in exchange for block rewards—6.25 BTC.

Mining difficulty adjustment is continuous and automated, done roughly every two weeks, and primarily factors in the hash rate for adjustment, ensuring that Bitcoin blocks are always mined within 10 minutes regardless of the number of mining rigs in the network.

What Causes Mining Difficulty To Go Up?

The mining difficulty of a proof-of-work blockchain fluctuates, with the main driver being the number of participating miners.

However, miners are profit-oriented, expecting revenue from block rewards to offset their resource expenditure. During periods of high prices, mining difficulty is often highest as more people get involved and even those with older equipment become profitable again. Therefore, the hash rate is also impacted mainly by the coin’s price. In a bullish market, a network’s mining difficulty will always rise as more miners connect, supplying a hash rate. In response, the network’s mining algorithm readjusts difficulty, raising it in response to increasing hash rate.