Dynamic adjustment of the computational effort required to produce a new Bitcoin block
When we talk about Bitcoin Mining, sooner or later the term "Difficulty" comes up. It indicates how difficult it is to solve the proof-of-work puzzle. But how exactly can you imagine it? And what is the aim of difficulty?
Why is Bitcoin Mining so complicated?
In Bitcoin Mining, the miners try to find a special hash. At first glance, such a special hash is noticeable because it starts with a certain number of zeros. The difficulty depends on the total global hash rate of the network.
However, the hash itself also has a value. The more zeros at the beginning of the hash, the smaller the value of the hash. The difficulty is determined by the so-called target. The target specifies how small the hash of the block must be to be accepted as valid by the rest of the network.
In Bitcoin, one of the rules of the game is that a block with valid transactions and a hash under the target is also accepted as valid by all other participants. The other participants then add this block to their copy of the block chain and build the next one on top of this block.
Since hashes are always completely random, it is a matter of probability how often one has to guess for a hash under a given target to fall out of the hash function. The difficulty thus indicates how difficult it is to find a desired hash.
Difficulty is thus a component of the Proof of Work. It determines how much work has to be done on average. Once a valid hash has been found, it is clearly evident that the miner has applied the work.
How is the Mining Difficulty changing?
On average, the Bitcoin network finds a new block every ten minutes. These ten minutes are a constant in Bitcoin. Satoshi Nakamoto defined these ten minutes as a benchmark for block time.
This means that the target adapts to the overall hash rate of the network, so that on average a block is found every ten minutes. This means that with all the rate attempts of all the participants in the network, it takes ten minutes for one to come up with a valid solution.
If new miners enter the network, or an existing miner upgrades its mining hardware, the hash rate increases. To prevent the block time from shrinking further, the difficulty automatically adjusts every 2016 block. This corresponds to about two weeks. The Bitcoin computer code examines the block time of the last 2016 blocks and adjusts the target and consequently the difficulty.
The advantage of a mathematical proof-of-work mechanism like in Bitcoin is that it is possible to determine very precisely how fast the network encounters a valid hash.
Thus, on average, the network produces a new block every ten minutes to confirm new transactions. If mining power, i.e. hash rate, is added or dropped, Bitcoin automatically adapts to the new conditions.
Why does it take ten minutes to find a new block?
The block time of ten minutes is a trade-off between several factors. On the one hand, a shorter block time would lead to faster confirmation of transactions. An often cited argument against the ten-minute block time in Bitcoin is that buying a coffee would take so long that it would be cold before drinking it. This is because a transaction is not confirmed until it is included in the block chain: after all, the coffee seller also wants to make sure that he gets his money and doesn't hand over the coffee for free.
On the other hand, a shorter block time also requires a greater bandwidth of the network participants, because the blocks must be propagated fast enough in the network. There is a consensus in the Bitcoin network about the current status of all accounts. All participants agree on which transaction has happened and which has not. If the block time is too short, it can happen that not all participants have heard about the new block in time. Especially when the size of the blocks increases, this can become a problem if there is a lack of bandwidth. Accidental splits in the network could occur if one half of the network does not get a block in time. As the block time decreases, the number of orphan blocks increases.
With this in mind, Satoshi Nakamoto chose a block time of ten minutes.
