The difficulty mode is a character setting selected during character creation, and only applies to the character being created. There are 3 different options. The difficulty mode of a character determines what happens upon their death. Once a character has been created, the difficulty cannot be changed.
Modes
Softcore mode
Softcore mode characters drop half of their money on death (rounded up), and nothing else. Softcore characters respawn immediately at their spawn point following death. Softcore is the default mode, and the easiest.
Mediumcore mode
Mediumcore mode characters drop all of their items upon death, including money and ammo, which other players can then collect in multiplayer. Mediumcore characters still respawn at their spawn point following death.
In the 
Console version, softcore mode is called "normal", and mediumcore is called "difficult".
Hardcore mode
Hardcore mode characters die permanently, and drop all of their items upon death, including money and ammo, which other players can then collect in multiplayer.
Death causes a Hardcore character to become a Ghost that can continue to observe the World but not affect it. Ghosts can fly, pass through walls, observe and continue to chat with other multiplayer users, but cannot interact with the environment in any way. Other players will not see Ghosts.
Once a dead Hardcore character quits the current world, that character is permanently deleted. Items a Hardcore character placed in Chests will not be deleted, however items the character stored in Piggy Banks and Safes will be deleted.
Character difficulty mode is unrelated to Hardmode, which is a change to the World that occurs after the Wall of Flesh has been defeated.
Notes
- Character difficulty mode is unrelated to Hardmode, which is a change to the World that occurs after the Wall of Flesh has been defeated.
- In the Console version, softcore mode is called "normal", and mediumcore is called "difficult". Hardcore is still called hardcore.
Tips
- New players may want to use softcore mode characters until they become more familiar with the game.
- Mediumcore characters may want to keep their second-best equipment in a chest in case of death.
- Hardcore mode can be utilized to freely explore a map by dying and flying through the ground and sky as a Ghost.
History
- 1.2.4.1: The proper items will now drop on Mediumcore/Hardcore deaths.
- 1.2.3.1: Fixed bug where Hardcore characters couldn't open the menu after death.
- 1.0.6.1: Mediumcore characters now correctly drop ammo on death.
- 1.0.5: Hardcore mode introduced.
- Pre-Release: Introduced.