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Say the difficulty of the bitcoin network was not variable. Then regardless of the network hash-rate, the mining puzzle will be the same. What would that mean in terms of the security and economics of the bitcoin network?

If everything else remains equal, then I'm assuming that mining a block becomes easier and easier and we will have mined all 21 million bitcoins much sooner. Besides this, will anything change security wise? And if so, can anything be done to maintain the decentralised consensus and fiscal policy of the network with a constant difficulty? For example, the block reward payed to the miner becomes inversely proportional to the number of parent blocks.

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You would eventually be up against network propagation speed, since miners would get powerful enough to mine faster that the blocks can propagate across the network. The nodes with the lowest latency between each other would always be ahead with the longest chain, penalizing those with higher latency.

You're correct that the 21 million will be reached much sooner.

You can observe this on the testnet when the block times are high enough, after it resets to the initial difficulty and blocks come flying in multiple times a second (basically as fast as the network can handle it). For more info see Testnet difficulty change

  • The bit about testnet isn’t really correct, there’s a badly designed rule that allows difficulty 1 blocks after a period. – Anonymous Jun 13 at 14:04
  • Aren't nodes already penalised for latency as high latency nodes can only start mining from the current head after they've learnt about the latest transactions? – Satoshi Jun 13 at 14:05
  • @Satoshi That's true, but the penalty would be much larger when the block time is ~0 – JBaczuk Jun 13 at 14:29
  • @Anonymous isn't it only if the block times are too long, though? github.com/bitcoin/bitcoin/blob/master/src/pow.cpp#L23 – JBaczuk Jun 13 at 14:30
  • The difficulty resets to 1 on testnet if it has been more than 20 minutes since the last block. If gamed correctly, the difficulty can be set to 1 for an entire difficulty adjustment period and effectively constantly kept at 1. – Andrew Chow Jun 13 at 17:46
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The blocks would come faster and faster. After a while (assuming there are enough computers and the price is high enough) the blocks would not be mined properly because their timestamps would be too close. This, however, would not happen if the mining power stayed constant as well and in that case, everything would happen as normal.

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