Bitcoin Hash Rate and Why It Matters

By Samuel Becker · May 11, 2021 · 7 minute read

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Bitcoin Hash Rate and Why It Matters

Recently, Bitcoin has been at or near a record high hash rate. In April 2021, hashing power hit more than 198 quintillion hashes per second (h/s)—a record.

What is Bitcoin’s hash rate? And why is this important for investors? Read on for a full explanation.

What Is Bitcoin’s Hash Rate?

Bitcoin’s hash rate refers to the amount of computing and process power being contributed to the network through mining. Bitcoin mining is a vital process that keeps the digital currency’s network maintained. This happens via a mammoth global network of mining machines (powerful computers built for this task). These machines mine bitcoins by solving complex mathematical computations that verify Bitcoin transactions.

To solve these problems, each machine has to make millions of guesses per second. This requires a lot of electricity. Bitcoin miners consume around 129 Terawatt-hours of energy, which is around 0.6% of the world’s total, according to The University of Cambridge’s Bitcoin electricity consumption index .

And this energy-intensive mining network is still growing. It takes a lot of electricity to keep the blockchain network up to date.

Bitcoin Hash Rate: 2018-2022

bitcoin hash rate chart from 2018 to 2022

How Hash Rate Works

Bitcoin and many other cryptocurrencies are built using blockchain technology. Blocks are similar to files which hold data about the most recent transactions made throughout the network—and in a blockchain, they make a chain, each one dependent on the others.

Every time someone purchases Bitcoin or uses it as payment, the transaction is recorded on the blockchain. All transactions can be viewed publicly (though anonymously), and they cannot be changed. The Bitcoin blockchain is a decentralized, digital ledger containing a record of all past transactions. The network confirms those transactions, and since the network is decentralized, the ledger’s record is secure.

But since blocks are like data files, larger blocks require more power to verify. That’s where hashing enters the picture. “Hashing” a block is the process of ensuring the validity of the network transactions. As a reward for hashing, miners receive bitcoins.

To successfully mine a block and receive bitcoins, a machine has to hash the block’s header, which is a summary of the information contained within a given block (similar to metadata).

It’s a complex process, but the important thing to know is that the Bitcoin network is designed to make sure that a consistent number of Bitcoins are released into the market over time. To keep this consistent, bitcoin mining becomes more difficult over time.

Miners find the target by trying different combinations of possible numbers and letters in the block header. This varied value field in the block header is called the “nonce.”

The miners always begin with a nonce of zero, and increase it each time they guess, until the target is reached. Important: The chances of landing on the correct hash are very low—hence, the difficulty in mining Bitcoins.

The Bitcoin hash rate is a measurement of how many times the Bitcoin network attempts to complete those calculations each and every second. It’s the approximate average of all the hash rates of each individual miner in the network.

A higher hash rate is better, because it increases the miner’s chances of finding the next block and receiving a Bitcoin reward.

How the Bitcoin Hash Rate Is Measured

The Bitcoin hash rate is expressed as hashes per second (h/s). Bitcoin’s network is large and powerful, and as a result, can calculate quintillions of hashes every second. For reference, a quintillion is a million million millions, or 1,000,000,000,000,000,000.

Fluctuations in Bitcoin’s daily mining power can be significant. Increases or decreases of 10% or more each day are common. But these fluctuations don’t necessarily mean that thousands of miners are joining or leaving the network each day.

Bitcoin’s mean hash rate calculation is not precise. With so many machines running all over the world, analysts can only look to recent market activity to create an estimate of the current hash rate.

Because of that, looking up the current hash rate may yield different results. To get a better sense of the hash rate, looking at longer-term trends—weekly versus daily hash rates, for instance—may be more useful.

Why Hash Rates Matter to Miners

For individual miners, calculating a hash rate can help them predict their profitability.

There are many types of mining machines, and new ones are constantly debuting. Each cryptocurrency is mined with different machines, and they don’t all have the same hash rate—as mining requires different amounts of power, memory, and processing bandwidth.

Individual miners can calculate their personal hash rate using a hash rate calculator. By inputting information about their mining equipment, power and electricity consumption, mining fees, and other relevant information, the hash rate calculator can spit out an earnings estimate.

When mining equipment is upgraded with more powerful machines, the network hash rate might increase as a result. However, a more powerful network doesn’t necessarily result in bitcoins being mined more quickly, as the network is built to release a certain amount at a time.

Changes to hashing power are also related to mining difficulty, the number of miners in the network, and ultimately, profitability for miners.

If new miners join the network, the mining difficulty increases because miners now need to make more guesses each second to solve the calculation and win the block reward.

If the Bitcoin network’s difficulty increases, the hash rate also increases.

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Electricity Prices and Profitability

Bitcoin miners must invest in mining machines, storage for those machines, and electricity to keep the machines running. Many mining operations also pay for precise temperature and humidity controls to keep the machines running at an optimized pace.

Thus, the cost of electricity affects profitability for miners. A miner in Seattle could be far more profitable than one in New Jersey, due to a difference in electricity costs.

And as Bitcoin mining becomes more difficult, the process eats up more electricity. This increases costs for miners.

This is important to keep in mind when looking at hash rate, because hashing power is not the only factor that goes into calculating miner profitability.

What the Hash Rate Means for Bitcoin

A good hash rate might indicate that miners are investing money into newer, more powerful mining equipment, which in turn might mean they have confidence in the network.

The Bitcoin hash rate is generally considered to be a health signifier for the network—a high hash rate means high processing power is present within the network, which also creates greater security.

The security of the Bitcoin blockchain relies upon miners working together to build the same chain, or ledger. As miners validate new blocks, the blocks get added to the Bitcoin blockchain. The longest chain of blocks is always accepted as the valid version.

It’s important to have only one ledger, otherwise Bitcoin could, in theory, be duplicated, or spent twice. Double spending can be thought of in this way: If a bank kept two different ledgers of transactions, they could each have different information on them and the same money could be spent multiple times.

How Hash Rate Can Affect Investors

A high hash rate indicates a healthy network, which may, in turn, lead to higher Bitcoin values.

Currently, hash rates are significantly higher than in years past, and should continue to increase. That may mean that Bitcoin values follow—though given the volatility of cryptocurrency, there is no guarantee. Plus, simple supply and demand could become the dominating factor determining Bitcoin’s price going forward.

Past trends are not predictions for the future, and you should do your research and consider your risk tolerance before making any moves.

The Takeaway

The Bitcoin hash rate is the number of times per second that computers on the Bitcoin network are hashing data to verify transactions and perform the encryption that secures the network. The hash rate is an indicator of how healthy the Bitcoin network is at any given time, and is driven primarily by difficulty mining and the number of miners. Generally, a high hash rate is considered a good thing.

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