Everything Satoshi did in inventing Bitcoin was non-original – his genius was in seeing how combining a specific set of previously solved problems could, together, solve certain unsolved problems – except **the Difficulty Adjustment**. The Difficulty Adjustment is Satoshi’s most underappreciated breakthrough - a truly genius application of game theory.
Suppose Bitcoin’s price rises, creating an incentive for more Bitcoin miners to mine because their rewards are greater.
More hashpower will join the network and on average, blocks will be mined faster than 10 minutes, therefore Bitcoin will be minted more often.
In this case, the Bitcoin protocol will automatically raise the difficulty of mining, such that the creation of new Bitcoin, and the timing of transaction verification, does not accelerate beyond its preset schedule (about every 10 minutes).
Analogously, suppose Bitcoin’s price falls, and higher cost Bitcoin miners turn off their machines. The Bitcoin protocol will automatically reduce the difficulty of mining, such that the creation of new Bitcoin, and the timing of transaction verification, does not decelerate below its preset schedule.
The Difficulty Adjustment is what drives Bitcoin’s **salability across time**.
Unlike gold, even amidst periods of surging demand for Bitcoin, Bitcoin miners have no ability to mine Bitcoin faster, making unexpected inflation impossible. Forever.
Typical of Satoshi’s understated style, the Difficulty Adjustment was described in just two sentences in his original Bitcoin whitepaper: “Mining difficulty is determined by a moving average targeting an average number of blocks per hour. If they are generated too fast, the difficulty increases.”
The Difficulty Adjustment has now been continuously tested for fourteen years, at total global network power levels ranging from a just a few laptops, all the way up to enough energy to power New York City, and with lots of total network power volatility along the way.
The total network power volatility is what requires the Bitcoin protocol to continually adjust the mining difficulty, akin to continually adjusting the number of digits of the product of the two primes. And, astonishingly, just as Satoshi designed, no matter the global mining capacity, or its variability - a new block is verified every 10 minutes.
Tick Tock, Next Block!
-- an excerpt from the Stone Ridge 2020 Shareholder Letter, its 2-minute version can be found here https://www.2minutebitcoin.org/blog/stone-ridge-2020-shareholder-letter
2minutebitcoin
npub1p6…9ej3v
2023-04-29 17:56:45
Author Public Key
npub1p63d4vekvuql9zltpp4dezzfk2xxfgjsfqyglf4ju4syalekn4csn9ej3vPublished at
2023-04-29 17:56:45Event JSON
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"content": "Everything Satoshi did in inventing Bitcoin was non-original – his genius was in seeing how combining a specific set of previously solved problems could, together, solve certain unsolved problems – except **the Difficulty Adjustment**. The Difficulty Adjustment is Satoshi’s most underappreciated breakthrough - a truly genius application of game theory.\n\nSuppose Bitcoin’s price rises, creating an incentive for more Bitcoin miners to mine because their rewards are greater.\nMore hashpower will join the network and on average, blocks will be mined faster than 10 minutes, therefore Bitcoin will be minted more often.\n\nIn this case, the Bitcoin protocol will automatically raise the difficulty of mining, such that the creation of new Bitcoin, and the timing of transaction verification, does not accelerate beyond its preset schedule (about every 10 minutes).\n\nAnalogously, suppose Bitcoin’s price falls, and higher cost Bitcoin miners turn off their machines. The Bitcoin protocol will automatically reduce the difficulty of mining, such that the creation of new Bitcoin, and the timing of transaction verification, does not decelerate below its preset schedule. \n\nThe Difficulty Adjustment is what drives Bitcoin’s **salability across time**.\n\nUnlike gold, even amidst periods of surging demand for Bitcoin, Bitcoin miners have no ability to mine Bitcoin faster, making unexpected inflation impossible. Forever.\n\nTypical of Satoshi’s understated style, the Difficulty Adjustment was described in just two sentences in his original Bitcoin whitepaper: “Mining difficulty is determined by a moving average targeting an average number of blocks per hour. If they are generated too fast, the difficulty increases.”\n\nThe Difficulty Adjustment has now been continuously tested for fourteen years, at total global network power levels ranging from a just a few laptops, all the way up to enough energy to power New York City, and with lots of total network power volatility along the way.\n\nThe total network power volatility is what requires the Bitcoin protocol to continually adjust the mining difficulty, akin to continually adjusting the number of digits of the product of the two primes. And, astonishingly, just as Satoshi designed, no matter the global mining capacity, or its variability - a new block is verified every 10 minutes.\n\nTick Tock, Next Block!\n\n-- an excerpt from the Stone Ridge 2020 Shareholder Letter, its 2-minute version can be found here https://www.2minutebitcoin.org/blog/stone-ridge-2020-shareholder-letter",
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