Key points
The difficulty adjustment every 2,016 blocks helps maintain a consistent 10-minute block time, preventing rapid inflation and network overload.
In October 2024, Bitcoin mining difficulty reached a record high of 95.7 trillion, increasing energy consumption and putting pressure on miners' profits unless they adapt to more efficient equipment or lower energy costs.
Changes in the network's hash rate, due to factors like more miners or better equipment, directly affect Bitcoin's mining difficulty in maintaining block time.
Concerns about Bitcoin's energy consumption have driven miners to explore renewable energy and other solutions to remain competitive and sustainable.
Bitcoin mining is the process of solving complex problems to secure the network and generate new coins. To ensure new blocks are added at a steady pace, the difficulty of these problems is adjusted frequently.
Simply put, when there are more miners participating in the network, mining Bitcoin becomes more difficult, ensuring a predictable supply and a secure system.
This article explains what Bitcoin mining difficulty is, how it adjusts over time to keep the network secure and stable, how it is calculated, and what factors influence mining profitability.
Understanding Bitcoin mining difficulty
Bitcoin mining difficulty ensures the network adds blocks at a stable 10-minute interval, preventing rapid inflation and network overload. Miners must find a hash with a specific number of leading zeros by adjusting the "nonce." This difficulty adjusts every 2,016 blocks to maintain stability and security in the network.
The fact is, mining Bitcoin is not difficult at all. Essentially, all miners do is hash the following information:
Previous block header: Links the new block to the previous block, maintaining the continuity of the chain.
Merkle root: A hash representing all transactions in the block, allowing efficient verification of data integrity.
Timestamp: The time the block was created, used to order chronologically.
Version number: Indicates the version of the block and the protocol rules it follows.
For a modern Bitcoin miner, computing the hash for a new block must happen instantly. So why isn't it?
First, the blockchain would become overloaded with blocks being added at an uncontrolled pace. This would lead to a surge of new Bitcoins flooding the market, resulting in hyperinflation. The value of Bitcoin would plummet as new coins would be created much faster than the intended supply schedule, disrupting the delicate balance that maintains its scarcity.
Second, quickly adding blocks would stress the network, making it difficult for nodes to synchronize. Full nodes, which validate and store the entire blockchain, would struggle to download and verify an excessive number of blocks, leading to network fragmentation. This could make it easier for bad actors to exploit security vulnerabilities, such as executing a 51% attack, as the speed of block production would hinder proper validation and consensus among nodes.
Ultimately, the transaction processing will become chaotic. The lack of difficulty adjustment means there will be no structured time for transaction confirmations, undermining network reliability. The predictable 10-minute block time is essential to ensure that transactions are processed in a timely manner but in an orderly fashion. Without this, users may face unpredictable transaction times and inconsistent fee structures, reducing trust in the network.
A natural solution to this problem is simply to increase the difficulty of hashing this information.
Bitcoin and other proof-of-work chains like Monero and Litecoin solve this problem by requiring miners to hash information not just into any hash function but into a hash that meets certain size requirements.
For example, if you hash the phrase "I love Cointelegraph" into a 256-bit hexadecimal hash through an algorithm like SHA-256, you would get:
148530ee91a00571250b58ea69c9947b10a702cf135b3f56cdad39f74450d145
This is quite a large integer. So, what can be done to shorten it?
By adding information that alters the output (called nonce), you will have to try and fail about 16 times to get one leading zero:
I love Cointelegraph 64
04dc36a0b5a40cba5524cd80064bcb5d21dfd28ecd811684f520a73e38362abf
Perhaps not small enough. To achieve two leading zeros, you would need about 256 attempts. Change the nonce to 98 and see the result:
I love Cointelegraph 98
00ddde1a51e44602a4397cb80f51dc218e6bbc3b50ac4dc4b612e7d62016ca02
Success! Now, how many attempts do you need to achieve three leading zeros? About 4,000 attempts. And for twenty leading zeros? Potentially, the number could reach septillions.
Indeed, this is how mining difficulty works: the hash must start with a certain number of leading zeros. In turn, this requires a "nonce" value added to the hash by the miner, typically ranging from 0 to about 4,000,000.
Depending on how quickly miners meet these requirements, the difficulty will automatically adjust every two weeks (or more precisely, after every 2,016 blocks) to ensure block time remains as close to the average of 10 minutes as possible.
The following is an example of a block header that successfully met the mining difficulty requirements in November 2024:
000000000000000000000a497c6b1be95b76a9e25a797f8fe49953d40c06a027e
Think of a classroom of students with a math problem. If most students finish too quickly, the teacher will make the next problem harder.
If they take too long, the next problem will be easier. Similarly, the Bitcoin network monitors the rate of block addition and adjusts the "difficulty of the problem" to maintain a consistent 10-minute interval.
This balance is crucial to maintaining a predictable supply of new Bitcoin and ensuring network security.
Calculating Bitcoin mining difficulty: Is mining a block hard?
Bitcoin mining difficulty, or "nBits," includes the exponent and coefficient to set the mining target. A lower target value means higher difficulty.
"Difficulty" referred to here is more accurately called "nBits." This field is a concise representation of mining difficulty that includes two main parts:
Exponent: The exponent indicates the number of bits to be shifted left to set the exact target. Essentially, it defines the overall "size" of the target by specifying how many positions the coefficient needs to be shifted. In short, it determines the number of zeros.
Coefficient (or significand): The coefficient is the numerical value that, when combined with the exponent, will determine the actual threshold. This value provides the necessary detail to adjust difficulty accurately. In summary, it indicates high-value numbers (significand) followed by leading zeros.
The combination of these two factors creates the complete difficulty target that miners must achieve or go below to successfully mine a block.
For example, the specific nBits value of 0x1b0404cb means:
The exponent is 0x1b (or 27 in decimal), indicating the number of bits shifted left.
The coefficient is 0x0404cb (or 263755 in decimal), forming the base number for the target threshold.
These components are crucial as they define the level of difficulty in mining a new block. The lower the target value, the harder it is to find a hash that meets the criteria.
Did you know? The term nBits stands for "network bit." This is a compact representation used in Bitcoin mining to denote the difficulty target for miners.
Factors affecting Bitcoin mining difficulty
As the hash rate increases due to more miners or better equipment, difficulty increases to maintain a 10-minute block time. If the hash rate decreases, difficulty decreases.
As mentioned, Bitcoin mining difficulty is a dynamic parameter that adjusts approximately every two weeks (or after every 2,016 blocks). The state of the total network hash rate is the main reason nBits changes. After all, it represents the combined computing power of all miners in the Bitcoin network.
A higher hash rate indicates more miners or more powerful mining equipment contributing to the network. As the hash rate increases, blocks are mined faster than the intended 10-minute interval. To compensate, the network increases mining difficulty, ensuring blocks continue to be added at a stable rate. Conversely, if the hash rate decreases, difficulty will lower to maintain block creation time.
For example, in October 2024, Bitcoin's seven-day moving average hash rate peaked at nearly 703 exahash per second (EH/s), resulting in a corresponding increase in mining difficulty.
The opposite scenario can also occur. If miners leave the network or their mining devices become outdated or unprofitable, the total hash rate will decrease.
Such a case occurred at the end of 2021 when China cracked down on cryptocurrency mining, forcing many operations to shut down or relocate. This sudden drop in hash rate led to a significant decrease in mining difficulty. In July 2021, Bitcoin experienced the largest downward difficulty adjustment of about 28%, allowing miners to continue mining blocks at a reasonable rate despite the reduced network capacity.
Did you know? The transition from CPU and GPU mining to ASIC mining has significantly increased the network's hash rate over the years, necessitating frequent adjustments to mining difficulty to maintain target block times.
Bitcoin mining difficulty – a timeline
The mining difficulty number represents how much harder it is to mine a new block compared to the base difficulty of 1 (the easiest when Bitcoin was first launched). For example, if the difficulty number is 10,000,000, it means mining a block is 10 million times harder than when the difficulty was 1.
2009 – The birth and early years
January 2009: Mining difficulty started at 1, the simplest level, when Satoshi Nakamoto mined the genesis block using a basic CPU. This low number indicates minimal competition and computing power required to mine a block.
December 2009: Difficulty remained at 1, reflecting the limited number of participants in the network.
2010 – Transition to GPU mining
July 2010: The emergence of GPU mining led to the first significant increase in difficulty. By the end of 2010, the difficulty had risen to around 14, reflecting a shift from conventional mining to more competitive participation with better hardware.
2013 – The ASIC mining era
January 2013: The introduction of ASIC miners caused a significant increase in difficulty because they provided more powerful computing capabilities than GPUs. Difficulty increased to around 3,500,000.
December 2013: By the end of the year, the difficulty surged to around 1,500,000,000, reflecting the rapid adoption of ASIC technology and increased network hash rate.
2017 – The Bitcoin bull market
January 2017: Mining difficulty was around 300,000,000,000, significantly increasing thanks to improved mining hardware and an increasing number of miners entering the market due to rising Bitcoin prices.
December 2017: By the end of the bull run, difficulty reached around 1,590,000,000,000, reflecting increased competition and investment in mining infrastructure as Bitcoin prices approached $20,000.
2020 – The third halving and its impact
May 2020: Just before the third halving, mining difficulty was around 16,100,000,000,000. This halving reduced the block reward from 12.5 to 6.25 BTC, prompting adjustments in miner participation and profitability.
December 2020: Mining difficulty increased to around 18,600,000,000,000 as miners adapted to new economic conditions and continued investing in more efficient mining equipment.
2021 – China's mining ban
May 2021: China's crackdown on mining caused a sharp decline in hash rate. Difficulty dropped by 28% in July 2021, down to around 14,400,000,000,000. This reduction was the largest downward adjustment in Bitcoin's history, showing how policy changes in major mining areas can impact the network.
December 2021: As miners moved to new areas and continued operations, difficulty would recover to around 24,200,000,000,000.
2024 – Record highs
October 2024: Mining difficulty reached a record high of 95,672,703,408,223, reflecting a significant increase in global hash rate, advancements in mining hardware, and wider adoption.
How difficulty affects Bitcoin miners' revenue
As more miners join the network or upgrade their mining rigs, the difficulty will adjust upward to keep block times stable at around 10 minutes. This means each miner has to perform more calculations to solve a block, increasing energy costs and cutting into their profit margins.
As you can see, in October 2024, difficulty reached an all-time high of about 95.7 trillion. This fierce competition forces miners to use more energy, and for many, that means lower profits unless they can offset costs.
However, miners do not sit idle while costs rise. Here are some strategies they use to stay ahead:
Hardware upgrades: Newer, more efficient ASICs give miners more hashing power per watt. By regularly updating their equipment, they can reduce costs even as difficulty increases.
Reducing energy costs: Many miners relocate to areas with cheap electricity or renewable energy sources. Lower energy costs mean better profits, and sustainable sources can provide stable pricing in the long run.
Scaling up: Operating larger mining farms helps distribute costs. Larger operations can buy in bulk and secure better deals on equipment and electricity, improving their net profitability.
Adding revenue streams: Some miners offer cloud mining services or lease space in their data centers to offset costs. Others even experiment with AI services to mine new income sources.
Merging and expanding: Merging with other mining companies allows firms to pool resources and reduce competition, helping them weather the ups and downs of difficulty and Bitcoin price volatility.
These strategies help miners navigate increasing difficulties and maintain profitability in a highly competitive market. But with each difficulty increase, they are driven to find new ways to keep mining economically viable.
The future of mining difficulty
Bitcoin seems to have established itself, but its future is still uncertain.
Government policies increasingly impact mining and difficulty adjustments. In 2022, Kazakhstan's mining energy tax temporarily reduced hash rates as miners faced higher costs.
On the other hand, El Salvador has embraced mining by promoting geothermal energy, stabilizing the hash rate and supporting higher difficulty. Iceland and Norway also attract miners with their abundant renewable energy sources, providing stable hash rates with lower environmental impacts.
However, the concept of mining difficulty highlights the environmental challenges of PoW. The enormous energy consumption involved in trial-and-error calculations has led countries like Sweden to push for restrictions, which could reshape future mining regulations. Ethereum's shift to proof of stake (PoS) in 2022 cut energy use by 99%, demonstrating how sustainable alternatives can thrive and putting additional pressure on Bitcoin to innovate.
However, PoW remains a critical factor in Bitcoin's security model. The enormous energy cost required for mining makes it difficult for any malicious actor to alter the blockchain or execute attacks. This level of security and resilience is difficult to replicate in other systems, and while PoS offers environmental advantages, PoW has proven robust in maintaining network integrity.
Miners have adapted by turning to renewable energy sources such as hydropower in Canada and solar power in the United States. Some even repurpose excess mining heat for industrial purposes to improve sustainability.
Quantum computers pose another potential challenge, capable of generating enormous mining power that could produce acceptable hashes much faster than current hardware, which could significantly increase difficulty. While experts say practical quantum computers are still years away, the Bitcoin community has been researching quantum-resistant algorithms to secure the network.
The future of Bitcoin mining difficulty is balanced between threats and solutions. Whether its PoW mechanism can continue to evolve depends on how it adapts to these challenges.
Did you know? Experts predict that practical fault-tolerant quantum computers capable of outperforming classical computers in various tasks could emerge around 2035. This would mark a significant shift in computational power and technology.