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INCREASING DIFFICULTY

In the early days of Bitcoin, Satoshi Nakamoto found himself in a conversation that took place on the metzdowd Cryptography Mailing List, where Nakamoto addressed concerns about the inflationary nature of Bitcoin due to increasing hardware speed.

In his response, Nakamoto clarified that the Bitcoin system is designed to adjust the difficulty of the proof-of-work algorithm based on the total computing power of the network. This adjustment ensures that the rate of block creation remains constant, regardless of increases in hardware speed. He further explained that the creation of new coins does not necessarily result in inflation, as the value of the coins would depend on the rate of increase in demand relative to supply.

This email showcases Nakamoto’s understanding of economic principles and his ability to design a system that balances the creation of new coins with the demand for them. It provides a glimpse into the thought process behind the creation of Bitcoin and the innovative solutions that were employed to ensure its stability and sustainability.