To unlock Hard difficulty, beat the game, then go to Lake Temple and examine the well.
Mario easter egg:
Talk to the kid with the orange hat in the rift. He will say “A thief passing by said that he ran into two mustached guys looking for Princess Pineapple or something like that, and to look out for Boo or he will steal your coins”. The two mustached guys are a reference to Mario and Luigi, while Princess Pineapple is clearly Princess Peach. Also, in Mario games, Boo steals your coins if you run into him.