Bitcoin Mining Difficulty: What It Is and Why It Matters

Written by Sean GraytokUpdated: 12th Nov 2021
Share this article

Disclaimer: This post contains references to products from one or more of our advertisers. We may receive compensation (at no cost to you) when you click on links to those products. Read our Disclaimer Policy for more information.

For the sake of consistency, we’ll explain mining difficulty through the lens of Bitcoin. Let’s get started.

What is Mining Difficulty?

Mining difficulty is a measure of how difficult it is to mine a block in a blockchain for a givencryptocurrency.

The difficulty is directly proportional to the total estimated mining power that is online across the network. It is measured in Total Hash Rate (TH/s), or the number of hashes per second.

A larger hash rate means that miners can make more guesses to generate a hash that is less than or equal to the target hash.

A miner does this by guessing for a “nonce” or the missing integer value needed before putting the block’s data through Bitcoin’s chosen encryption function SHA-256.

The miner adds the guessed nonce to the block’s known data and puts it through the SHA-256 encryption function to generate a “hash” — the resulting deterministic alphanumeric string of letters and numbers that uniquely describes the contents of the block.

When mining difficulty increases, it’s harder to find the golden nonce that results in a hash less than the target hash.

Which brings us back to mining difficulty. The Bitcoin protocol adjusts the target hash to control the supply rate of new bitcoin entering circulation.

Understanding Mining Difficulty

The Bitcoin protocol wants a new block to be mined every 10 minutes, on average. This means that new bitcoin will enter the supply every 10 minutes in the form of a block reward to the miner for successfully mining a block.

However, the hash rate varies at any given time when miners come online and go offline for whatever reason.

To accommodate this variance, the Bitcoin protocol adjusts the difficulty to mine every 2,016 blocks (approximately every two weeks) based on the number of blocks that were mined over the previous two-week period.

It achieves this by changing the size of the target hash — essentially adding or removing the number of leading zeros in the alphanumeric number.

Changes to mining difficulty are broadcasted to the network, so each node is aware of the difficulty adjustment.

If more than 2,016 blocks were mined over the course of 20,160 minutes (~two weeks), the protocol will increase the difficulty of reducing the number of blocks mined in the next period.

It achieves this by making the target hash smaller, making it harder for miners to guess the right nonce, causing less capable miners to drop offline because it’s less profitable to compete for blocks.

The opposite is true too. If less than 2,016 blocks were mined over the course of 20,160 minutes, the protocol will decrease the difficulty to encourage more miners to come online and increase block discovery in the next period.

This is done by making the target hash larger, making it easier for miners to guess the right nonce.

The Blockchain is more secure when difficulty is higher because it requires significantly more computing power to overtake the network relative to when difficulty is lower.

Example of Mining Difficulty

The entire history of Bitcoin is transparent and publicly available, including the network’s difficulty.

Here’s a chart from Blockchain.comthat shows network difficulty over Bitcoin’s lifespan thus far:

Here’s another chart that shows mining difficulty throughout 2021:

The drop that occurred during June and July was due to China-based miners going offline — their hash rate went with them, so the network adjusted to make mining easier and incentivize other miners to come online.

The number 18,415,156,832,118 is the difficulty level at the time of this writing. This means that a miner has a 1 in 18.4 trillion probability of guessing the golden nonce on its first calculation.

Each subsequent guess has a higher probability of success because the miner knows which nonces are incorrect, thus decreasing the 18.4 trillion number in the denominator on each iteration through the hash function.

Satoshi and Bitcoin Mining Difficulty

Consider turning to Satoshi’s whitepaper when researching Bitcoin definitions. Here’s Satoshi on mining difficulty:

“To compensate for increasing hardware speed and varying interest in running nodes over time, the proof-of-work difficulty is determined by a moving average targeting an average number of blocks per hour. If they’re generated too fast, the difficulty increases.”

This paragraph indicates how computing power, PoW, difficulty, and supply schedules are interconnected within the Bitcoin protocol.

Each concept may be complex in its own right, but they function predictably and straightforwardly when combined.

Mining Difficulty FAQs

How does mining difficulty work?

Mining difficulty increases or decreases every 2,016 blocks based on the network’s total estimated hash rate — essentially the total number of hashes the network can generate per second. If the protocol needs to slow down the rate at which new bitcoin enters circulation, it will make mining more difficult and time-consuming, which makes it less profitable to mine bitcoin, causing a percentage of miners to temporarily pack up shop.

What is the current Bitcoin mining difficulty?

The current mining difficulty is around 18.4 trillion, up from 1 when Satoshi mined the first block in 2009. Difficulty reached an all-time high of around 25 trillion in May 2021. This means that miners had a 1 in 25 trillion chance of guessing the golden nonce on their first try.

What is the difficulty level in Blockchain?

The ‘difficulty level’ in Blockchain describes how difficult and time-consuming it is to mine a block for the given Blockchain. For Bitcoin, the difficulty level is adjusted every two weeks to ensure that new BTC enter supply every 10 minutes, on average.

Will Bitcoin mining difficulty go down?

Bitcoin mining difficulty fell when China-based miners were forced to go offline in April 2021. North American miners were well-positioned to pick up the slack and have benefited enormously since. However, mining difficulty is expected to increase in the coming months. Former China-based miners are shifting their operations to locations where mining is allowed and are expected to come online before the new year.

Bottom Line: Mining Difficulty Definition

The difficulty adjustment captures supply and demand incentives in a programmatic arena. It is codified capitalism in an increasingly digital world.

Sean Graytok
Sean Graytok

Sean Graytok is our Co-Founder and is a recognized expert in investing, cryptocurrency, and financial management. His work has been cited in leading industry publications, such as InvestorsPlace and Business Insider. Sean is interested in the people and companies who are driving financial innovation.