Difficulty

The Difficulty mode is selected during character creation, and will only affect that character.

There are 3 different Difficulty modes:
 * Softcore mode, when you die you drop half of your money.
 * Mediumcore mode, you drop all of your items when you die, including money and ammo.
 * Hardcore mode, when you die you drop all of your items and become a ghost. While in this state you cannot alter the world in any way. Once you quit to the main menu the character is gone.

This is unrelated to/should not be confused with hardmode, which is a change to the world that occurs after the Wall of Flesh has been defeated.

These difficulties are only truly affected if you die. It will not affect the amount of damage enemies cause, money needed to buy anything, or anything else.