What Is Hashrate and Why Does It Matter?

The hashrate is a measure that indicates the mining power of a computer per second. It is closely monitored by blockchain professionals because it allows measuring the speed of bitcoin mining. In short, it is a data used to evaluate the number of crypto-assets that can be mined with given hardware. So, how is this rate measured? How does it vary? And what is its importance for miners and investors?

What exactly is the hashrate?

The hashrate, also called hash rate or “taux de hash,” is data that measures a computer’s power. More specifically, it is the speed of mining measured in hash units per second. In other words, how many calculations per second can be performed.

Indeed, the hashrate indicates the total computing power required to record a new block on a blockchain using a proof-of-work system or Proof-of-Work (PoW). This is the case for Bitcoin and Ethereum before its new version 2.0.

Thus, machines with great hashing power are more efficient. More precisely, they are capable of processing a lot of data in a single second.

How is the hashrate measured?

Generally, it is measured in hashes per second (h/s). Currently, rates are counted in trillions of hashes per second. Thus, one can use kilo, mega, giga, or even tera units depending on the magnitude of the hash.

• 1 kilohash per second (KH/s) equals 1000 h/s ;
• 1 megahash per second (MH/s) equals 1 million h/s ;
• 1 gigahash per second (GH/s) equals 1 billion h/s ;
• 1 terahash per second (TH/s) equals 1000 GH/s ;
• 1 exahash per second (EX/s) equals 1 million TH/s.

For instance, 1 Ghash/s means that a billion hash calculations are performed each second.

What is the practical use of the hashrate?

The hashrate is useful data for both miners and investors.

Reliability indicator of a blockchain for investors

The hashrate gives the pulse of a blockchain. Indeed, the calculation speed is a function of the miners’ machine power and thus the quantity of resources devoted to mining a blockchain. The hashrate then indicates the motivation and confidence of miners in its cryptocurrency.

It also represents a security measure for a blockchain as the higher the hashrate, the less vulnerable the network will be to an attack. It thus helps prevent entities from trying to monopolize mining on its network. This is referred to as the “risk of a 51% attack,” or a “majority attack” when an entity manages to obtain 51% of the hashrate.

Competitiveness measurement unit for miners

To better understand mining, it’s important to recall how blockchain functions. A transaction must be securely validated to create a new block.

To do this, miners compete to solve a complex mathematical calculation as quickly as possible. The fastest earns the right to create the block, being rewarded in cryptocurrencies.

Indeed, to be the fastest, it is crucial to have a good hashrate, meaning a high computational capacity. It is the measure allowing them to assess their competitiveness level, the costs of their activity, and their profitability.

Tool to measure resources dedicated to mining by geographic area

The hashrate also serves to measure the resources dedicated to mining a blockchain by country. According to a study by the Cambridge Center for Alternative Finance, the United States (35%), Kazakhstan (18%), Russia, and Canada became hashrate leaders in 2021 when a mining ban hit China, which nevertheless represented more than 75% of Bitcoin’s global hashrate in 2019.

Today, we witness a better distribution of mining worldwide, which is a guarantee of security and true decentralization of a blockchain.

What causes the hashrate to increase?

Different factors influence the increase of the hashrate:

Quantity of transactions

The hashrate depends on the computer resources dedicated to mining, that is the number of people performing mining actions on the considered asset.

In other words, it fluctuates based on the transaction quantity that constantly changes and the degree of difficulty of the problems to solve. This implies that the more miners there are, the more difficult the competition will be, and the more computational power is needed to solve an operation or validate a block.

The time to generate bitcoins is on average 10 minutes. Hence, mining difficulty is adjusted every 2016 blocks to maintain this time.

Increase in an asset’s value

The number of miners generally increases when a digital asset’s value rises, since it’s possible to earn more money for the same work. But due to competition, the electricity expenses needed to run mining hardware also rise.

Cost of electricity

The electricity cost is another factor of fluctuation in the hashrate. In fact, mining activity consumes a lot of energy and electricity.

The hashrate can then be unpredictably and randomly impacted by climatic elements. This was the case during the price increase of electricity related to heavy rains in the Sichuan region, China, in August 2020.

What causes the hashrate to decrease?

Regarding the decrease in hashrate, the principle is the same as the increase.

Decline in profitability

The hashrate decreases when the cryptocurrency’s profitability drops. Profitability decreases, for example, when the electricity cost is higher than what a miner can earn by selling the mined crypto-assets.

When a digital asset’s value falls, miners who are no longer profitable will stop their operations. They will then try their luck on another digital currency. Only those living in a country where electricity is cheap can remain profitable.

Mining regulation

The policies of the countries where miners are located are another factor of fluctuation in the hash rate. It could be a subsidy policy or new taxation on mining activities that can encourage or discourage miners. The most telling example remains the prohibition of mining and cryptocurrencies in China in May 2021. This led to a temporary drop of more than 50% in Bitcoin’s hashrate.

What is Bitcoin’s hashrate?

The hashrate varies a lot due to different events, and as we have mentioned, that of Bitcoin is no exception. For instance, Bitcoin mining was very difficult in October 2022, allowing it to reach a new record.

Indeed, it reached 36,835 trillion hashes. This number is significant because it means that one must have an extremely high hashrate to solve the equations necessary for cryptocurrency production within Bitcoin mining.

Moreover, Bitcoin’s hashrate can be affected by the halving. This is an event occurring approximately every 4 years, consisting of halving the BTC supply to maintain inflation.

The next Bitcoin halving is scheduled for 2024.

How to interpret the hashrate?

In summary, hashrate is an indicator of computing power, a health indicator of a blockchain, but also a reliability indicator for investors. However, it remains an indicator to be considered with caution because it is primarily a comparison tool. It is not representative of cryptocurrency’s market value. It mainly depends on the profitability of mining activity and can vary due to different factors such as the cost of electricity, a country’s policy, or taxation related to mining profits. It’s also important to note that the hash price plays a crucial role in the mining ecosystem.

La Rédaction C.

L'équipe éditoriale de Cointribune unit ses voix pour s’exprimer sur des thématiques propres aux cryptomonnaies, à l'investissement, au métaverse et aux NFT, tout en s’efforçant de répondre au mieux à vos interrogations.