This guide explains what a hashrate is, how it works, and its impact on Bitcoin mining and other cryptocurrencies that use the Proof-of-Work (PoW) consensus mechanism. It also investigates how hashrate is measured, what can cause it to change, and what happens when it increases or decreases.
What is a hashrate?
Mining is a way to obtain Bitcoin and other cryptocurrencies, which involves the use of advanced computers and mining rigs like Application-Specific Integrated Circuit (ASIC) miners. It mainly appeals to those who want to acquire crypto assets steadily without using other means, such as crypto exchanges.
Hashrate can help investors determine the health and security of a cryptocurrency’s network by providing a clear idea of the computing effort required to solve cryptographic puzzles to facilitate the mining process.
The more computing power used towards maintaining a cryptocurrency’s network, the more secure it can be and the more transactions it can handle. A higher hashrate implies greater security, as many miners are involved in verifying transactions. Similarly, a growing hashrate indicates miner optimism, which equates to additional capital investment in computing power.
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Mining difficulty and its link to hashrate
Closely associated with hashrate is “mining difficulty,” which refers to the level of difficulty that miners face in verifying transactions, bundling them into a block, and adding them to the blockchain. Mining difficulty is measured on a scale of zero to infinity.
For instance, Bitcoin’s mining difficulty is measured using an internal score that starts at 1, which is the easiest level, and increases or decreases rapidly based on the number of miners competing on the network. The score corrects after every 2,016 blocks, which happens around every two weeks. At the time of publication (October 21), the figure is 35,610,794,164,372, according to data from Blockchain.com.
Usually, miners target to find a new block every 10 minutes. Therefore, if miners are validating new blocks more often than every ten minutes on average, the mining difficulty increases, on the other hand, if miners find new blocks less frequently than every ten minutes on average, the mining difficulty decreases.
Overall, the more miners on a network, the higher the hashrate. It implies that many participants are competing for the correct hash and it’s more likely to discover it quickly. Blockchains are designed to add new blocks and release new cryptocurrencies at a steady and predictable rate. Mining difficulty is programmed to correct automatically to maintain that rate.
How does a hashrate work?
The term hashrate is derived from the words “hash + rate.” To understand the mechanism behind the hashrate, it’s important to learn about the hash. A “hash” is a fixed-length alphanumeric code that represents data of any length, words, or messages. “Rate” simply means speed. Different cryptocurrency projects use hashing algorithms to create unique hash codes.
Before adding a new transaction block to a blockchain network, miners would have to compete amongst themselves to guess the correct hash. During the competition, miners focus on producing a hash lower or equal to the numeric value linked to the ‘target’ hash. Every new hash is unique, and miners would have to go through many hashes before they can verify and add a new transaction to the chain.
After successful verification of a hash, a miner is rewarded with newly minted coins. They also receive a share of the fee linked to the transaction they add to the blockchain. The practice is normal for any blockchain network that uses the Proof-of-Work consensus mechanism.
Importantly, PoW blockchain networks utilize a programmed method known as “halving” to reduce the total supply of a digital currency, spread over the course of its mining lifespan. For instance, Bitcoin undergoes halving after every four years while other cryptocurrencies such as Dash and Litecoin set their unique conditions for halving.
As of Bitcoin’s last halving, which occurred in May 2020, Bitcoin miners would receive 6.25 Bitcoins as a reward each time they mine a new block. The next Bitcoin halving is set to take place after the expiry of four years from the date of the last halving, which will see the block rewards cut to 3.125 for each new block mined.
The importance of hashrate
A hashrate allows investors to assess the strength of a blockchain network, especially its security. When more miners honestly dedicate their expertise, time, and resources to discover the next block, the hashrate increases, and this makes it harder for malicious agents to penetrate and disrupt the network.
A blockchain network would be more vulnerable to attack when a single individual or a group of attackers buys or rents enough mining equipment to control more than 50% of a network’s hashrate. Blockchains are trustless platforms that follow the principle of the “longest chain rule” so any individual or group that controls the majority of the hashrate could disrupt the network.
In such a situation, often referred to as a 51% attack, attackers would have access to transactions, may reorganize them, or even reverse their own payments. In the end, it would undermine the integrity of the underlying blockchain.
A decrease in hashrate implies a decrease in the cost to perform a 51% attack, making the network more vulnerable. A sudden fall in hashrate would cause a cryptocurrency platform to halt operations such as trading or get delisted from an exchange.
Hashrate calculation explained
As mentioned earlier in this guide, cryptocurrency miners solve cryptographic transactions known as hashes, which are eventually added to the blockchain as blocks. The hashrate is measured in hash per second (H/s). This can be done using a hashrate calculator.
For example, in the case of Bitcoin, in the last ten years after the initiation of cryptocurrency, the computing power of the Bitcoin network has increased rapidly, including the performance of the mining equipment.
This has called for the need to use units of measurement, which are more convenient for expressing hashrate. Hashrate measurements are broken down as follows:
- 1kH/s is 1,000 (one thousand) hashes per second;
- 1MH/s is 1,000,000 (one million) hashes per second;
- 1GH/s is 1,000,000,000 (one billion) hashes per second;
- 1TH/s is 1,000,000,000,000 (one trillion) hashes per second;
- 1PH/s is 1,000,000,000,000,000 (one quadrillion) hashes per second;
- 1EH/s is 1,000,000,000,000,000,000 (one quintillion) hashes per second.
As of October 21, 2022, the Bitcoin hashrate is 263,004,438.117 TH/s.
A summary of what happens when hashrate rises or falls
An increase in hashrate means the following:
- More computational resources are deployed to mine new blocks;
- More electrical power consumption;
- Increased security on the network;
- Mining difficulty increases, making it much more difficult to mine new blocks.
When the hashrate falls, the following are likely to happen:
- Fewer miners are competing to add new blocks and earn rewards;
- Decreased security on the network, making it vulnerable to a 51% attack;
- Less electrical power consumption;
- Mining difficulty decreases, making it easier to mine new blocks.
Hashrate and altcoins
Apart from Bitcoin, other cryptocurrencies that operate on the PoW consensus mechanism also need hashing power to run their networks. The hashrate can vary significantly from one cryptocurrency to another. For instance, one coin can have a 6,600 XT hashrate while another can have a 3,080 TI hashrate. Additionally, the hashrate can also decrease or increase for each cryptocurrency individually.
As for most PoW cryptos, a higher hashrate is preferred to a lower level, as it improves the network’s overall stability and security. However, the hashrate of any coin doesn’t dictate how quickly or slowly a new block is completed. That frequency depends on what miners refer to as ‘block time’ stated on the mining difficulty value of the network.
Some of the PoW altcoins include:
- Dogecoin (DOGE);
- Litecoin (LTC);
- Monero (XMR);
- Bitcoin Cash (BCH);
- Bitcoin SV (BSV);
- Zcash (ZEC);
- Ravencoin (RVN).
Factors that affect hashrate
Generally, hashrate depends on a variety of factors, which include the following:
Selected mining algorithm
Mining algorithms are used to facilitate the cryptocurrency mining process. Some devices generate maximum performance within networks that use the Secure Hashing Algorithm (SHA), such as Bitcoin, Namecoin, or Bitcoin Cash.
However, the same devices may find their efficiency reduced drastically in networks that use the Scrypt algorithm, such as Litecoin, Gridcoin, or Dogecoin.
Mining equipment specifications vary depending on the manufacturer. Those who intend to invest in cryptocurrency mining may need to study the basics of the performance of different devices to help them choose the most optimal and cost-effective options.
The popularity of the cryptocurrency
Popular cryptocurrencies tend to attract more miners who would be interested in their production. As more miners connect their computing power to the network, the hashrate of the crypto in question would go up, as well as its difficulty of mining.
Overall, there are general ways that miners can use to impact a hashrate. For instance, the temperature of the mining equipment, such as graphic processing units (GPUs), can improve or hinder the hashrate. Cooler cards are more often preferable.
Additionally, all mining software programs are created differently, with some having hash algorithm improvements over others. This may affect the overall hashrate during the mining process, decreasing or increasing it by a significant margin.
A hashrate is an important concept in blockchain and cryptocurrency mining. Crypto miners need to understand and observe the hashrate for a cryptocurrency they intend to mine.
Additionally, a hashrate serves as a valuable resource that determines how a cryptocurrency network adjusts its mining difficulty. A higher hashrate offers more assurance of network stability and security.
FAQs on hashrate
What is a hashrate?
A hashrate is a measure of the overall computing power that miners use to produce new digital coins on a cryptocurrency network.
How can I calculate the hashrate of mining equipment?
Various online tools are available online, which you can use to calculate the hashrate of mining hardware. These tools come with standards for several different mining devices, and the hashrate can vary depending on the mining device and the type of cryptocurrency you choose to mine.
Which are some of the hashrate calculators available on the market?
Why is hashrate important in cryptocurrency mining?
A hashrate is one of the tools to use in determining the security and stability of a cryptocurrency network, which may boost the value of the mined coin. A higher hashrate is a strong indicator of better security and stability. On the other hand, a lower hashrate could increase a network’s vulnerability to attacks.
Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.