The hashrate is a measure widely followed by blockchain professionals. In particular, the Bitcoin hashrate is subject to significant variations. What is the hashrate of a cryptocurrency like Bitcoin and what is it used for? What is its importance and what information does it give on the blockchain to which it refers?
The hashrate, a key indicator of PoW blockchains
The hashrate , the hash rate in French, is data to watch closely for miners, but also for cryptocurrency investors.
It is often mentioned in the specialized media, especially since the ban on cryptocurrencies and mining in China in May 2021.
What exactly is the hashrate , and how can we interpret this measurement?
The hashrate is a technical term for the blockchain. It refers to the total computing power required to register a new block on a blockchain that uses a proof-of-work (PoW) validation system , such as Bitcoin (BTC) and Ethereum ( before its new version 2.0).
The hashrate refers to the total computing power dedicated to creating blocks and verifying transactions on a blockchain.
How is hashrate measured?
The hashrate is measured in hashes per second (h / s). Current rates are counted in billions of billions of hashes per second. The main units of measure used are terahash and exahash. Here are some orders of magnitude:
- 1 megahash per second (MH / s) = 1 million h / s;
- 1 gigahash per second (GH / s) = 1 billion h / s;
- 1 terahash per second (TH / s) = 1000 GH / s;
- 1 exahash per second (EX / s) = 1 million TH / s.
To compare hashrate levels, we can refer to the Bytwork.com conversion tool .
What are the hashrate levels?
There is no precise measure of the hashrate of networks that use proof of work, only estimates, such as those provided by Blockchain.com (for Bitcoin) and Etherscan (for Ethereum).
The Bitcoin blockchain hashrate is estimated at 180 million terahash per second (TH / s) and that of Ethereum at 895 TH / s , at the time of writing. This rate can vary significantly upwards or downwards from one month to another, depending on many events outside the blockchain in particular.
Hashrate: meaning and interpretation
The hashrate, a gauge of competitiveness for minors
The hash rate is above all an essential data for mining professionals. To understand, let’s come back to the definition of mining.
When a transaction is issued on the blockchain, it must be securely validated by the creation of a new block . Each individual transaction is temporarily recorded on a node, that is, a computer on the network. It is then registered on the blockchain, by packet of tens or hundreds of transactions, with the creation of a block.
To create a block, the miners compete to perform a complex mathematical calculation as quickly as possible. Indeed, the fastest wins the right to create the block and is rewarded in crypto-currencies.
For miners, it is therefore crucial to be the fastest and therefore to have a good hashrate, that is to say a high computing capacity. This is THE measure that allows them to assess their level of competitiveness, the costs of their activity and their profitability.
For investors, the hashrate can serve as an indicator of the reliability of a blockchain
Although difficult to measure precisely and especially to interpret, the hashrate also gives the pulse of a blockchain.
The speed of the calculations depends on the power of the miners’ machines, and therefore on the amount of resources dedicated to mining a blockchain. It is an indicator of the motivation and confidence of miners in this blockchain and in its cryptocurrency, by which they are remunerated.
Then, the hashrate is an indicator of the level of complexity of the mining . It is therefore a measure of the security of a blockchain. The higher the hashrate, the less vulnerable the network will be to an attack.
Indeed, the fact that a blockchain has a high hashrate protects it against entities that would try to take the monopoly of mining on its network. If an entity gets more than 51% of a network’s hashrate, then there is a risk of network takeover and embezzlement. We then speak of “ risk of an attack by 51% ” or “ majority attack ”.
It would currently require a power of around 90 million terahashs per second to hold more than 50% of the hashrate of the Bitcoin network, which is clearly not within the reach of just anyone.
We can thus compare the security of the different blockchains using proof-of-word by comparing their respective hashrates. We see, for example, that the hashrate of the Bitcoin network is much higher than that of the Ethereum blockchain.
Finally, the hashrate in the global sense makes it possible to measure the resources dedicated to the mining of a blockchain by geographic region . For example, in 2019, China was known to represent more than 75% of Bitcoin’s global hashrate, according to data from the Cambridge Center for Alternative Finance.
The situation changed in May 2021 with the ban on mining in China. The United States is now the leader with 35% of the hashrate, followed by Kazakhstan with 18%, Russia and Canada.
Evolution of the hash rate from September 2019 to August 2021 – Source: Cambridge Center of Alternative Finance
We are thus witnessing a greater distribution of mining in the world , and so much the better. Indeed, the geographical distribution of minors guarantees the security and real decentralization of a blockchain .
This geographical decentralization makes it possible to limit the impact that a climatic event or that a sudden fiscal or political decision can have on the computing power of a blockchain.
What factors influence hash rates?
The level of the hashrate varies depending on the computer resources dedicated to mining. It depends on the quantity of transactions which varies daily, and the difficulty of the problems to be solved.
It also depends on the age and size of the blockchain. The more complex the blockchain , the more difficult it is to mine . It’s a bit like a diamond mine: the more you dig, the harder it is to dig.
It is also a function of Bitcoin and Ether prices. The more they rise, the more profitable and attractive mining is. Thus, the activity has attracted more and more minors since 2019.
An important fluctuating factor is the cost of electricity . Indeed, the mining activity is very energy intensive and expensive in electricity. Thus, hashrate can be impacted unpredictably and randomly by climatic elements, such as during the increase in the price of electricity due to heavy rains in the Chinese region of Sichuan in August 2020.
It can also be easily deduced that new sources of greener and less expensive energy (like volcanic energy in El Salvador ) can increase the profitability of mining, thus attracting new miners, and pushing hashrate upwards.
Finally, the main disruptive element remains the policies of the countries where the minors are installed. A policy of subsidies, or on the contrary a new taxation of mining activities, can encourage or deter minors.
The textbook case will of course remain the ban on mining and cryptocurrencies in China in May 2021, which caused Bitcoin’s hashrate to drop temporarily by more than 50%.
We therefore understand that in the long term the hashrate can be linked to the prices of Bitcoin (BTC) and Ether (ETH) cryptocurrencies, but that it is very difficult to interpret a trend of the hashrate in relation to the price of the sub-cryptocurrency. underlying the blockchain concerned.
What are the hashrate trends?
Bitcoin and Ethereum hashrates fluctuate on a daily basis. They have seen their levels sometimes drop sharply since 2019. But overall they have been on an upward trend since 2009, the year the Bitcoin network was created, and especially since the acceleration of blockchains since 2018.
Historically, the main drops in Bitcoin hashrate levels have been linked to China’s policy measures, especially in November 2020, due to an increase in electricity due to the rains in Sichuan , then in June 2020, following Electricity restriction measures for Chinese mining farms , and especially between May and July 2021, with the gradual ban on mining and cryptocurrency .
Conclusion
To summarize, the hashrate measures the power of all the machines dedicated to ensuring the security of a blockchain. It brings us many elements of analysis allowing us to judge the level of reliability and decentralization of a blockchain.
It remains an indicator to be taken with caution , because it depends above all on the profitability of the mining activity, and can be dependent on various and variable factors, such as the cost of electricity, the taxation linked to the profits of mining or the politics of a country.
If the hashrate can be read as an indicator of the health of a blockchain, it remains above all a tool for comparison and does not necessarily predict the good or bad health of the price of crypto-assets.
