Cryptocurrency Difficulty

Cryptocurrency difficulty is a measure of how difficult it is to mine a block in a blockchain for a particular cryptocurrency. A high cryptocurrency difficulty means it takes additional computing power to verify transactions entered on a blockchain—a process called mining.

Cryptocurrency difficulty is a parameter that bitcoin and other cryptocurrencies use to keep the average time between blocks steady as the network’s hash power changes. Cryptocurrency difficulty is important since a high difficulty can help secure the blockchain network against malicious attacks. Bitcoin and other cryptocurrencies that use proof-of-work blockchains are maintained through the process of mining. Miners verify transactions that are done on a blockchain and perform the duties of auditors to prevent fraud and ensure the legitimacy of the transactions. Mining was conceived by bitcoin’s founder, Satoshi Nakamoto.

In this system, miners—who run the cryptocurrency’s software on their computers—compete to find a new block, adding the most recent batch of transaction data to the chain. When enough transactions have been verified, a new block is added to the blockchain. Miners may get paid a fee for their efforts but there are other requirements before a miner can receive compensation if any at all. The extent of the computing power needed to mine a block is represented by cryptocurrency difficulty. The time it takes to find a new block is subject to the level of cryptocurrency difficulty and random chance. In order to measure the cryptocurrency difficulty of a new block, it’s important to understand hash power, which represents the combined computational power being used to mine and process the transactions on the blockchain.

A hash is an alphanumeric code that’s used to represent words or data. Miners take a batch of transaction data and run it through a hash algorithm, a one-way function that—given a particular set of data—will always produce the same output, but whose output cannot be reversed to show the original data. Hashing algorithms are used to create these random hash codes. Before new data can be added to a blockchain, miners must compete to produce a hash that’s lower or equal to a numeric value called a target hash.

Miners accomplish the hashing process by changing a single value, called a nonce—or a number used once—and each time the nonce is changed, a new hash is created with its own set of numbers.

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