diff --git a/main.py b/main.py
index 12577dd..1400211 100644
--- a/main.py
+++ b/main.py
@@ -20,35 +20,31 @@
 import asyncio
 import logging
 import re
-import sys
-
+import time
 from nacl.signing import SigningKey
-from nacl.encoding import HexEncoder
-
-from minichain import Transaction, Blockchain, Block, State, Mempool, P2PNetwork, mine_block
+import nacl.encoding
 
+# Local project imports
+from minichain import Transaction, Blockchain, Block, mine_block, Mempool, P2PNetwork
 
 logger = logging.getLogger(__name__)
 
 BURN_ADDRESS = "0" * 40
 
 
-# ──────────────────────────────────────────────
-# Wallet helpers
-# ──────────────────────────────────────────────
-
+# -------------------------
+# Wallet Creation
+# -------------------------
 def create_wallet():
     sk = SigningKey.generate()
-    pk = sk.verify_key.encode(encoder=HexEncoder).decode()
+    pk = sk.verify_key.encode(encoder=nacl.encoding.HexEncoder).decode()
     return sk, pk
 
 
-# ──────────────────────────────────────────────
-# Block mining
-# ──────────────────────────────────────────────
-
-def mine_and_process_block(chain, mempool, miner_pk):
-    """Mine pending transactions into a new block."""
+# -------------------------
+# Mining + Block Processing
+# -------------------------
+def mine_and_process_block(chain, mempool, pending_nonce_map):
     pending_txs = mempool.get_transactions_for_block()
     if not pending_txs:
         logger.info("Mempool is empty — nothing to mine.")
@@ -60,12 +56,44 @@ def mine_and_process_block(chain, mempool, miner_pk):
         transactions=pending_txs,
     )
 
-    mined_block = mine_block(block)
+   # Mine using current consensus difficulty; chain updates next difficulty after acceptance
+    block.difficulty = chain.difficulty
+
+    start_time = time.time()
+    mined_block = mine_block(block, difficulty=block.difficulty)
+    mining_time = time.time() - start_time
+
+    # Attach mining time to block (optional but useful)
+    mined_block.mining_time = mining_time
+
+    if not hasattr(mined_block, "miner"):
+        mined_block.miner = BURN_ADDRESS
+
+    deployed_contracts = []
 
     if chain.add_block(mined_block):
-        logger.info("✅ Block #%d mined and added (%d txs)", mined_block.index, len(pending_txs))
-        chain.state.credit_mining_reward(miner_pk)
-        return mined_block
+        logger.info("Block #%s added with Difficulty: %s",
+                    mined_block.index,
+                    mined_block.difficulty)
+
+        # Reward miner
+        miner_attr = getattr(mined_block, "miner", BURN_ADDRESS)
+        miner_address = (
+            miner_attr if re.match(r'^[0-9a-fA-F]{40}$', str(miner_attr))
+            else BURN_ADDRESS
+        )
+
+        chain.state.credit_mining_reward(miner_address)
+
+        for tx in mined_block.transactions:
+            sync_nonce(chain.state, pending_nonce_map, tx.sender)
+
+            result = chain.state.get_account(tx.receiver) if tx.receiver else None
+            if isinstance(result, dict):
+                deployed_contracts.append(tx.receiver)
+
+        return mined_block, deployed_contracts
+
     else:
         logger.error("❌ Block rejected by chain")
         return None
@@ -244,76 +272,199 @@ async def cli_loop(sk, pk, chain, mempool, network, nonce_counter):
         else:
             print(f"  Unknown command: {cmd}. Type 'help' for available commands.")
 
+# -------------------------
+# Nonce Sync
+# -------------------------
+def sync_nonce(state, pending_nonce_map, address):
+    account = state.get_account(address)
+    pending_nonce_map[address] = account.get("nonce", 0) if account else 0
 
 # ──────────────────────────────────────────────
 # Main entry point
 # ──────────────────────────────────────────────
 
-async def run_node(port: int, connect_to: str | None, fund: int):
-    """Boot the node, optionally connect to a peer, then enter the CLI."""
-    sk, pk = create_wallet()
+# -------------------------
+# Node Logic
+# -------------------------
+async def node_loop():
+    logger.info("Starting MiniChain Node with PID Difficulty Adjustment")
 
     chain = Blockchain()
     mempool = Mempool()
     network = P2PNetwork()
+    pending_nonce_map = {}
 
-    handler = make_network_handler(chain, mempool)
-    network.register_handler(handler)
+    def get_next_nonce(address) -> int:
+        account = chain.state.get_account(address)
+        account_nonce = account.get("nonce", 0) if account else 0
+        local_nonce = pending_nonce_map.get(address, account_nonce)
+        next_nonce = max(account_nonce, local_nonce)
+        pending_nonce_map[address] = next_nonce + 1
+        return next_nonce
 
-    # When a new peer connects, send our state so they can sync
-    async def on_peer_connected(writer):
-        import json as _json
-        sync_msg = _json.dumps({
-            "type": "sync",
-            "data": {"accounts": chain.state.accounts}
-        }) + "\n"
-        writer.write(sync_msg.encode())
-        await writer.drain()
-        logger.info("🔄 Sent state sync to new peer")
+    async def _handle_network_data(data):
+        try:
+            if data["type"] == "tx":
+                tx = Transaction(**data["data"])
+                if mempool.add_transaction(tx):
+                    await network.broadcast_transaction(tx)
+
+            elif data["type"] == "block":
+                block_data = data["data"]
+                txs = [
+                    Transaction(**tx_d)
+                    for tx_d in block_data.get("transactions", [])
+                ]
+
+                block = Block(
+                    index=block_data["index"],
+                    previous_hash=block_data["previous_hash"],
+                    transactions=txs,
+                    timestamp=block_data.get("timestamp"),
+                    difficulty=block_data.get("difficulty"),
+                )
+                 block.nonce = block_data.get("nonce", 0)
+                 block.hash = block_data.get("hash")
+                 block.miner = block_data.get("miner", BURN_ADDRESS)
+
+      chain.add_block(block)
+         except Exception:
+             logger.exception("Network error while handling incoming data")
 
-    network._on_peer_connected = on_peer_connected
+    # Nonce counter kept as a mutable list so the CLI closure can mutate it
+    nonce_counter = [0]
 
-    await network.start(port=port)
+    try:
+        await _run_node(network, chain, mempool, pending_nonce_map, get_next_nonce)
+    finally:
+        await network.stop()
 
-    # Fund this node's wallet so it can transact in the demo
-    if fund > 0:
-        chain.state.credit_mining_reward(pk, reward=fund)
-        logger.info("💰 Funded %s... with %d coins", pk[:12], fund)
 
-    # Connect to a seed peer if requested
-    if connect_to:
-        try:
-            host, peer_port = connect_to.rsplit(":", 1)
-            await network.connect_to_peer(host, int(peer_port))
-        except ValueError:
-            logger.error("Invalid --connect format. Use host:port")
+# -------------------------
+# Run Node
+# -------------------------
+async def _run_node(network, chain, mempool, pending_nonce_map, get_next_nonce):
+    await network.start()
+
+    alice_sk, alice_pk = create_wallet()
+    _bob_sk, bob_pk = create_wallet()
+
+    # Initial funding
+    chain.state.credit_mining_reward(alice_pk, reward=100)
+    sync_nonce(chain.state, pending_nonce_map, alice_pk)
+
+    # Alice sends Bob 10 coins
+    logger.info("[2] Alice sending 10 coins to Bob")
+
+    # -------------------------------
+    # PID Demo: Mining 5 Blocks
+    # -------------------------------
+    logger.info("[3] Mining Multiple Blocks (Watch Difficulty Adjust)")
+
+    for i in range(5):
+        await asyncio.sleep(1)
+        tx_payment = Transaction(
+             sender=alice_pk,
+             receiver=bob_pk,
+             amount=10,
+             nonce=get_next_nonce(alice_pk),
+         )
+         tx_payment.sign(alice_sk)
+         mempool.add_transaction(tx_payment)
+
+        logger.info(f"\nMining Block {i+1}")
+
+        mined = mine_and_process_block(chain, mempool, pending_nonce_map)
+         if not mined:
+             logger.info("No pending transactions to mine in this iteration")
+             continue
+         mined_block, _ = mined
+        
+
+        if mined_block:
+            logger.info("Block mined in %.2f seconds",
+                        mined_block.mining_time)
+
+            logger.info("New difficulty: %s",
+                        chain.difficulty)
+
+    # Final balances
+    alice_acc = chain.state.get_account(alice_pk)
+    bob_acc = chain.state.get_account(bob_pk)
+
+    logger.info(
+        "Final Balances -> Alice: %s, Bob: %s",
+        alice_acc.get("balance", 0),
+        bob_acc.get("balance", 0),
+    )
+
+
+# -------------------------
+# Entry Point
+# -------------------------
+
+async def start_interactive_node(port=None, connect=None):
+    chain = Blockchain()
+    mempool = Mempool()
+    network = P2PNetwork()
+    pending_nonce_map = {}
+
+    sk, pk = create_wallet()
 
-    # Nonce counter kept as a mutable list so the CLI closure can mutate it
     nonce_counter = [0]
 
+    await network.start(port=port)
+
+    if connect:
+        host, port_str = connect.rsplit(":", 1)
+        await network.connect_to_peer(host, int(port_str))
+
     try:
         await cli_loop(sk, pk, chain, mempool, network, nonce_counter)
     finally:
         await network.stop()
 
 
+async def run_demo():
+    chain = Blockchain()
+    mempool = Mempool()
+    network = P2PNetwork()
+    pending_nonce_map = {}
+
+    await network.start()
+
+    def get_next_nonce(address):
+        account = chain.state.get_account(address)
+        account_nonce = account.get("nonce", 0) if account else 0
+        local_nonce = pending_nonce_map.get(address, account_nonce)
+        next_nonce = max(account_nonce, local_nonce)
+        pending_nonce_map[address] = next_nonce + 1
+        return next_nonce
+
+    try:
+        await _run_node(network, chain, mempool, pending_nonce_map, get_next_nonce)
+    finally:
+        await network.stop()
+
+
 def main():
-    parser = argparse.ArgumentParser(description="MiniChain Node — Testnet Demo")
-    parser.add_argument("--port", type=int, default=9000, help="TCP port to listen on (default: 9000)")
-    parser.add_argument("--connect", type=str, default=None, help="Peer address to connect to (host:port)")
-    parser.add_argument("--fund", type=int, default=100, help="Initial coins to fund this wallet (default: 100)")
+    parser = argparse.ArgumentParser(description="MiniChain Node")
+
+    parser.add_argument("--port", type=int, help="Port to run node")
+    parser.add_argument("--connect", help="Peer to connect to host:port")
+    parser.add_argument("--demo", action="store_true", help="Run Alice/Bob demo")
+
     args = parser.parse_args()
 
-    logging.basicConfig(
-        level=logging.INFO,
-        format="%(asctime)s [%(levelname)s] %(message)s",
-        datefmt="%H:%M:%S",
-    )
+    logging.basicConfig(level=logging.INFO, format="%(message)s")
 
     try:
-        asyncio.run(run_node(args.port, args.connect, args.fund))
+        if args.demo:
+            asyncio.run(run_demo())
+        else:
+            asyncio.run(start_interactive_node(args.port, args.connect))
     except KeyboardInterrupt:
-        print("\nNode shut down.")
+        pass
 
 
 if __name__ == "__main__":
diff --git a/minichain/chain.py b/minichain/chain.py
index 78ac73f..3b346d5 100644
--- a/minichain/chain.py
+++ b/minichain/chain.py
@@ -1,6 +1,7 @@
 from .block import Block
 from .state import State
 from .pow import calculate_hash
+from minichain.consensus.difficulty import PIDDifficultyAdjuster
 import logging
 import threading
 
@@ -13,6 +14,8 @@ class Blockchain:
     """
 
     def __init__(self):
+        self.difficulty = 3
+        self.difficulty_adjuster = PIDDifficultyAdjuster(target_block_time=5)
         self.chain = []
         self.state = State()
         self._lock = threading.RLock()
@@ -60,6 +63,17 @@ def add_block(self, block):
                 logger.warning("Block %s rejected: Invalid hash %s", block.index, block.hash)
                 return False
 
+            # Enforce PoW difficulty
+            if block.difficulty != self.difficulty:
+                logger.warning(
+                    "Block %s rejected: Invalid difficulty %s != %s",
+                    block.index, block.difficulty, self.difficulty
+                )
+                return False
+            if not block.hash.startswith("0" * self.difficulty):
+                logger.warning("Block %s rejected: Hash does not meet difficulty target", block.index)
+                return False
+
             # Validate transactions on a temporary state copy
             temp_state = self.state.copy()
 
@@ -72,6 +86,13 @@ def add_block(self, block):
                     return False
 
             # All transactions valid → commit state and append block
+            previous_timestamp = self.last_block.timestamp
             self.state = temp_state
             self.chain.append(block)
+            actual_block_time = max(0, (block.timestamp - previous_timestamp) / 1000)
+            self.difficulty = self.difficulty_adjuster.adjust(
+                self.difficulty,
+                actual_block_time=actual_block_time,
+            )
+            logger.info("New difficulty: %s", self.difficulty)
             return True
diff --git a/minichain/consensus/difficulty.py b/minichain/consensus/difficulty.py
new file mode 100644
index 0000000..0e4fdd4
--- /dev/null
+++ b/minichain/consensus/difficulty.py
@@ -0,0 +1,63 @@
+import time
+
+class PIDDifficultyAdjuster:
+    def __init__(self, target_block_time=5, kp=0.5, ki=0.05, kd=0.1):
+        self.target_block_time = target_block_time
+        # PID Coefficients
+        self.kp = kp
+        self.ki = ki
+        self.kd = kd
+
+        self.integral = 0
+        self.previous_error = 0
+        self.last_block_time = time.monotonic()
+        
+        # Limit the integral to prevent "Windup"
+        # This stops the difficulty from tanking if the network goes offline
+        self.integral_limit = 100 
+        
+        # Max percentage the difficulty can change in one block (e.g., 10%)
+        self.max_change_factor = 0.1
+
+    def adjust(self, current_difficulty, actual_block_time=None):
+        """
+        Calculates the new difficulty based on the time since the last block.
+        """
+        # --- FIX: Handle the case where current_difficulty is None ---
+        if current_difficulty is None:
+            current_difficulty = 1000  # Default starting difficulty
+            
+        if actual_block_time is None:
+            now = time.monotonic()
+            actual_block_time = now - self.last_block_time
+            self.last_block_time = now
+
+        # Error = Goal - Reality
+        error = self.target_block_time - actual_block_time
+        
+        # Update Integral with clamping (Anti-Windup)
+        self.integral = max(min(self.integral + error, self.integral_limit), -self.integral_limit)
+        
+        # Derivative: how fast is the error changing?
+        derivative = error - self.previous_error
+        self.previous_error = error
+
+        # Calculate PID Adjustment
+        adjustment = (
+            self.kp * error +
+            self.ki * self.integral +
+            self.kd * derivative
+        )
+
+        # Apply adjustment with a cap to maintain stability
+        # Now current_difficulty is guaranteed to be a number
+        max_delta = max(1, int(round(current_difficulty * self.max_change_factor)))
+        clamped_adjustment = max(min(adjustment, max_delta), -max_delta)
+
+        delta = int(round(clamped_adjustment))
+         if delta == 0 and clamped_adjustment != 0:
+             delta = 1 if clamped_adjustment > 0 else -1
+         new_difficulty = current_difficulty + delta
+
+        # Safety: Difficulty must never drop below 1
+        return max(1, new_difficulty)
diff --git a/minichain/pow.py b/minichain/pow.py
index b8484b1..12aa367 100644
--- a/minichain/pow.py
+++ b/minichain/pow.py
@@ -60,7 +60,8 @@ def mine_block(
             block.nonce = local_nonce  # Assign only on success
             block.hash = block_hash
             if logger:
-                logger.info("Success! Hash: %s", block_hash)
+                elapsed_time = time.monotonic() - start_time
+                logger.info("Success! Hash: %s (%.3fs)", block_hash, elapsed_time)
             return block
 
         # Allow cancellation via progress callback (pass nonce explicitly)