January 4, 2021 / Beginners

What Is Bitcoin Network Difficulty

bitcoin

Mining of cryptocurrencies using Nakamoto Consensus (PoW) is based on the difficulty of the network, which is determined by the number of mining devices globally and their performance.

It affects how many financial investments in hardware will justify themselves, how many coins can be mined per unit of time, what the final profit we will get.

Let’s consider what the complexity of the bitcoin network is and how it affects the mining of new coins.

What Is The Difficulty Of Bitcoin Network

The difficulty of Bitcoin network is a dynamically changing metric that indirectly reflects the number of attempts that are made to find a hash that satisfies predefined conditions.

The solution to the problem of finding a hash is a selection of a value less than a given binary number, which contains a certain number of zeros at the beginning of a numerical sequence. If the found hash requires, for example, 40 zeros at the beginning, then the probability of finding it immediately is small, even on hardware. This is equivalent to tossing a coin 40 times in a row when only heads are drawn. The calculation shows that you need to flip a coin an average of 240 options.

Each new zero added to the beginning of the hash increases the complexity by 2 times. In other words, finding a hash with 41 zeros at the beginning is exactly 2 times more difficult than finding a hash with 40 zeros. And 4 times easier than in the case when it comes with 43 zeros. 50 zeros increase the complexity by 210 – 1024 times compared to the number 40. Thus, the complexity increases exponentially, which allows you to conveniently manage its values ​​and adjust them to the current state of the network.

The Bitcoin blockchain uses the SHA-256 cryptocurrency algorithm, which determines the hash length – a string of zeros and ones – of 256 characters. Each of which is 1 bit of information.

Why Is Network Difficulty Needed

This allows you to mine coins evenly and maintain the rate of formation of new blocks in a stable time interval. About once every 10 minutes, which equals 6 new blocks per hour. This excludes the situation when, with the help of powerful computing equipment, blocks will be mined for a shorter time, or an extended one, with a reduction in connected devices.

Due to Bitcoin difficulty, we are in a position to state with certainty that the last block of BTC will be mined around 2140.

The situation when all BTC are mined within a short time is detrimental to both everyday use and the survival of the cryptocurrency. Financial incentives for miners are almost gone, leaving only transaction fees as rewards.

To continue mining new coins, the number of participants does not matter: whether there are 100 devices, or 5 billion. The complexity of the bitcoin network is adjusted so that the time for solving the problem is always about 10 minutes.

Main Factors That Change The Difficulty Of Bitcoin Network

The difficulty of the Bitcoin network rises or falls automatically (correction). This happens about once every 2 weeks, or to be precise, every 2016 blocks found. If 2016 blocks are mined in less than 14 days, this is an increase in difficulty of Bitcoin network. The problem is solved in a shorter time, therefore, the mining capacity has increased.

When Bitcoin miners spent more than 2 weeks to find 2016 blocks, this is a signal that the number of devices for mining has decreased. Consequently, the hash rate drops and the complexity drops.

Factors directly affecting the complexity of the Bitcoin network:

  • The emergence of new types and models of hardware devices. The community first encountered this in 2014, when highly specialized integrated circuits for mining cryptocurrency (ASIC) appeared. Their computing power for solving the problem of choosing a 256-bit hash was hundreds of times higher than the most common graphics processing units (GPUs) at that time. As a result, the complexity jumped sharply;
  • Increasing popularity of Bitcoin. More and more applicants get an idea of ​​what a cryptocurrency is, among them there are those who want to start mining. This is the next most important factor influencing complexity, in addition to technical innovations;
  • The rise in the value of Bitcoin. When the profit is significant, the number of miners increases. If the rate falls, participants outside the profitability framework turn off the devices. Nobody is mining at a loss;
  • Transfer of capacity to work with other assets. If a new token appears on the market, the production of which gives more profit than bitcoin, miners will reorient the power (if the algorithm is supported by the device).
  • External background. Positive and negative news, decisions of the authorities, national and international regulators, analysts’ forecasts, the activity of hackers. Other factors indirectly affect the value of the coin, and hence the prospects for mining.

Today, the difficulty of  Bitcoin network is increasing more often. This is due to the novelty of the crypto assets, the attractive reward ratio (6.25 BTC), and the market rate ($ 33,000) of the cryptocurrency.

But halving comes into play, and the block reward is gradually and steadily declining.

The cost of electricity is seriously affected, as well as tax factors and legislative regulations on the part of the authorities.

Despite the fact that all coins will be mined around 2140, less than 1% of emission will remain for the last 100 years.

Calculation Procedure

The difficulty of Bitcoin network is directly determined by the following factors:

  • Bitcoin hashrate values, that is, the number and overall performance of mining facilities that solve the problem of finding a hash.
  • The time spent on the mining of one block.

Its calculation is carried out using the following formula:

difficulty = difficulty_1_target / current_target

The difficulty is calculated individually for each device or mining pool. It differs to a small extent from indicators on monitoring pages, for example, Blockchain.com, where the average value is displayed.

btc difficulty

Curiously, in one change, the difficulty is able to increase or decrease by no more than 4 times in any direction (blockchain features).

Actual Information

To get a summary of the current difficulty level, enter the get “difficulty” command into the software interface of the mining device. The following resources are most commonly used to further explore or prioritize an issue:

  • Bitinfocharts.com is a platform that provides information for the entire period of Bitcoin’s existence, from 2009 to the present. Scaling of individual sections of the chart for studying details is available, as well as additional tools;
  • Blockchain.info is the main resource for obtaining information, built on the principle of “nothing more”. As in the previous case, the chart is scaled, the history is viewed from the moment the first Satoshi Nakamoto block was generated. This is enough for most users, but the lack of additional tools is rather a disadvantage.

The vertical scale on the graphs indicates the difficulty level, the horizontal scale indicates the time.

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