Mining difficulty

‘Mining difficulty’ is a term used in the context of bitcoin mining and its hard forks. It refers to the level of computational difficulty required to successfully solve cryptographic problems and thus be able to register new blocks on a Proof-of-Work blockchain.

The difficulty of mining Bitcoin is automatically and periodically adjusted to ensure that the average time required to create a block remains relatively stable at 10 minutes. The adjustment is based on the total hashrate of the network, i.e. the amount of computing power used for mining on the network.

When more miners join the network and the total hashrate increases, the difficulty of mining increases. Conversely, when miners leave the network, the difficulty of mining decreases.

Here are the 3 main reasons why mining difficulty must be adjusted and maintain a minimum block time of 10 minutes: 

  • Decentralisation: for information to propagate throughout the network it takes time, so nodes and miners in the world need time to synchronise and reach a distributed consensus
  • Managing disputes: In the rare case that two miners manage to mine the same block (because the entire network has not managed to synchronise), the network must have time to choose which one to validate to avoid a fork
  • Tokenomics: If the mining difficulty remained the same as the number of miners increased, new BTCs would be created faster and faster, thus causing excessive inflation.

Correlated words

Testnet

A blockchain network used for testing new applications and features in a secure environment.

Layer 2

Protocol that operates on the basis of a blockchain to improve network scalability and efficiency.

UTXO

The Unspent Transaction Output is the amount of cryptocurrency resulting from a transaction on certain blockchains, which can be the input for future transactions.

Account Model

On the Ethereum blockchain, accounts are the foundation of the decentralised ledger and they are usually associated with a wallet address.

Royalty

Financial compensation paid to the creator of an NFT following its secondary purchase.

Multisig Wallet

A multisig wallet is a type of crypto wallet that requires two or more private keys to perform transactions.

Custodial Wallet 

A type of crypto wallet in which third parties hold the owner's private keys.

Seed phrase

Sequence of 12 or 24 words used to retrieve access to a wallet.

Non custodial wallet

A crypto wallet in which the owner retains custody of the private keys.

Fan Token

Fan Tokens are utility tokens that allow sports teams to connect with their fans.

Minting

Minting is the process of registration and creation of new digital assets on the blockchain, like tokens of NFTs.

NFT Domains

An NFT domain is a decentralised Internet domain managed by smart contracts and registered on the blockchain.

Metaverse

Digital platform in which users take part in shared experiences, immersed in an online virtual environment, sometimes based on blockchain

Delegated Proof-of-Stake

A variant of Proof-of-Stake in which the stake is transferred to delegates who act as validators. 

Pure Proof-of-Stake

It is a type of Proof-of-Stake in which validators are chosen randomly and anonymously thanks to the VRF function.

Liquid Proof-of-Stake

Proof-of-Stake variant in which tokens are not staked but liquid.

Stake

Total amount of cryptocurrency being staked

Staking Pool

The joint staking of several people's cryptocurrencies with the aim to increase the rewards

Cold Staking

Type of staking that requires the use of a cold wallet

Blockchain

A technology based on cryptography that enables decentralised and uncensored execution of any type of transaction.

Proof-of-Stake

A consensus mechanism based on putting cryptocurrencies at stake in order to contribute to the blockchain.

Genesis Block

This is the first block of a blockchain, sometimes referred to as block 0.

Block Height

The number of blocks in a blockchain starting from the genesis block.

Network

The set of interconnected computers, called nodes, on which the blockchain of a given cryptocurrency is based.

Transactions per second (TPS)

Literally 'transactions per second', it is a measure of the speed of a blockchain.

Transaction

Exchange of value, property or data between two parties.

Shard

Fragments' of blockchain operating in parallel.

Proof-of-Work

A consensus mechanism for blockchain based on the computing power of mining.

Node

Device connected to a blockchain and participating in its network.

Off-chain

Transaction that is not performed on the blockchain.

On-chain

Any process executed or recorded on the blockchain

Mining Pool

A company that bases its business on mining, by collecting a large number of powerful mining devices.

Mining

The process of creating new blocks for a blockchain in exchange for cryptocurrency rewards.

Consensus Mechanism

A decentralised way to validate transactions on blockchain.

Hash

A cryptographic function that serves to identify each block of the blockchain.

Governance

In the cryptocurrency sector, it indicates the way and rules by which projects and blockchains are governed.

Fee

Commission paid for the execution of transactions.

Double Spending

The possibility for an attacker to spend the same amount twice if the payment system does not have a mechanism to prevent this.

DoS

A Denial of Service is a computer attack that aims to make a network or service inaccessible.

DLT

Distributed Ledger Technologies are technologies based on an immutable ledger of transactions, the control of which is distributed.

Decentralised

It is said of a system governed by the consensus of its participants and without a central authority or hierarchy.

Cold Wallet

Wallets that are not connected to the internet.

Bridge

In blockchain technology, it is a connection that allows interaction between different blockchains.

Financial Bubble

Increase in the value of an asset, in an excessive way, given its intrinsic value.

Blockchain Explorer

Software that allows users to view all transactions and data exchanged on a given blockchain.

Block

The set of encrypted transactions that, connected to other blocks, makes up a blockchain.

ASIC

Devices dedicated to mining certain cryptocurrencies.

Interoperability

The ability to exchange data with other platforms, including those based on different types of blockchain, as well as with the off-chain world.

51% Attack

When a node or group of nodes attempts to take control of the blockchain.

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