Difficulty adjustments form the backbone of any proof-of-work blockchain, serving as the automatic regulation system that maintains network stability and security. In Quai Network, this mechanism becomes even more sophisticated, as it must balance not just network security but also the economic relationship between two different tokens with distinct monetary properties. Understanding how difficulty adjustment works provides insight into the fundamental economic forces that drive the entire Quai Network ecosystem. Work-based protocols are essentially automated supply-and-demand matching systems for network security. These protocols function by continuously monitoring network activity and adjusting mining difficulty to maintain consistent block production rates regardless of how much computational power joins or leaves the network. They periodically set difficulty and block reward values, establishing a desired rate of block production and new token issuance based on the estimated hashrate demand derived from observed block times over recent periods. The difficulty adjustment mechanism operates as a feedback control system, constantly measuring network performance against target metrics and making corrective adjustments. This continuous optimization process ensures that the network maintains its intended economic and security properties even as external conditions change dramatically. The mechanism works by analyzing recent network activity and adjusting system parameters like difficulty to bring future performance back toward optimal levels.
  1. Difficulty set to achieve certain blocktimes based on existing hashrate
  2. More than expected miner hashrate deployed
  3. Faster blocktimes
  4. Increase in system difficulty
  5. Harder to mine a block
  6. Blocktimes slow toward desired rate
The same flow works in the reverse as well, when less than expected miner hashrate is deployed, blocktimes slow, and difficulty must be adjusted downwards. Changes in hashrate are driven by market demand. Simply put, miners will deploy more when they’re paid more. With this framing, we can see that mining processes and the difficulty adjustment are best understood as a reactive market supply and demand matching function. Quai Network makes difficulty adjustments on a rolling basis over a previous set of blocks (instead of in sequential periods), to best match the supply of hashrate and demand for network security.