What is the hashrate, or hash rate?

The hashrate (hash rate in French) is a measure closely followed by blockchain professionals. The Bitcoin hashrate in particular 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 about the blockchain it refers to?

Hashrate, a key indicator of PoW blockchains

the hashrate, hash rate in French, is something to watch closely for minors, 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 hashrateand how can we interpret this measurement?

Hashrate is a technical term in blockchain. It designates the total computing power required to list a new block on a blockchain that uses a proof-of-work validation system (proof-of-work or PoW in English), as Bitcoin (BTC) and Ethereum (before its new version 2.0).

The hashrate refers to the total computing power dedicated to the creation of blocks and transaction verification of a blockchain.

How is the 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 measurement used are the terahash and the 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, one can refer to the conversion tool from Bytwork.com.

What are the hashrate levels?

There is no precise measurement 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 hashrate of the Bitcoin blockchain is estimated at 180 million terahash per second (TH/s) and that of Ethereum at 895 TH/s, at the time of writing this article. 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 competitiveness gauge for miners

The hash rate is above all an essential piece of data for mining professionals. To fully understand, let’s go back to the definition of mining.

When a transaction is issued on the blockchain, it must be securely validated by creating a new block. Each individual transaction is temporarily stored on a node, i.e. a computer on the network. It is then registered on the blockchain, in packets of tens or hundreds of transactions, with the creation of a block.

👉 Learn more – What is a block in blockchain technology

To create a block, 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 cryptocurrencies.

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.

👉 To better understand, see our introduction to cryptocurrency mining

For investors, the hashrate can serve as an indicator of the reliability of a blockchain

Although difficult to measure precisely and above all 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’s a indicator of the motivation and confidence of minors in this blockchain and in its cryptocurrency, by which they are remunerated.

Then the hashrate is a mining complexity level indicator. It is therefore a safety measure 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 monopolize mining on its network. If an entity obtains more than 51% of the hashrate of a network, then there is a risk of taking control of the latter and of embezzlement. We then speak of ” risk of a 51% attack ” Where ” majority attack “.

It would take a power of around 90 million terahashes per second right now to hold more than 50% of the hashrate of the Bitcoin network, which is clearly not within everyone’s reach.

👉 See our article on the subject: What is a 51% or double spending attack?

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 mining a blockchain by geographical region. For example in 2019, China was known to account for over 75% of the global Bitcoin hashrate, based on 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 that is good. Indeed, the geographical distribution of minors guarantees safety and real decentralization of a blockchain.

This geographical decentralization makes it possible to limit the impact that a climatic event or a sudden tax or political decision can have on the computing power of a blockchain.

The level of the hashrate varies according to 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 harder the mining. It’s a bit like a diamond mine: the deeper you dig, the harder it is to dig.

It is also a function of Bitcoin and Ether prices. The higher these rise, the more profitable and attractive the mining is. Thus, the activity has been attracting more and more minors since 2019.

An important fluctuation factor is the electricity cost. Indeed, the mining activity is very energy-intensive and expensive in terms of electricity. Thus, the hashrate can be impacted in an unpredictable and random way by climatic elements, such as during the increase in the price of electricity linked to heavy rains in the Chinese region of Sichuan in August 2020.

We can also easily deduce that new, greener and less expensive sources of energy (such as volcanic energy in El Salvador) can increase the profitability of mining, thus attracting new miners, and pushing the hashrate upwards.

Finally, the main disturbing element remains the country policies where the miners are located. A policy of subsidies, or on the contrary a new taxation of mining activities, can encourage or deter miners.

The textbook case will of course remain the ban on mining and cryptocurrencies in China in May 2021, which caused a temporary drop in Bitcoin’s hashrate of more than 50%.

We therefore understand that in the long term the hashrate can be linked to the course of the Bitcoin (BTC) and Ether (ETH) cryptocurrencies, but that it is very difficult to interpret a trend in the hashrate in relation to the course of the cryptocurrency below. underlying the relevant blockchain.

Bitcoin and Ethereum hashrates fluctuate daily. 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 policy measures by China, notably in November 2020, due to a rainy electricity surge in Sichuan, and 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 cryptocurrencies.

Conclusion

To summarize, hashrate measures power of all the machines dedicated to ensuring the security of a blockchain. It provides us with many elements of analysis allowing us to judge the level of reliability and decentralization of a blockchain.

There remains an indicator to be taken with cautionbecause 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, taxation linked to mining earnings or the policy of a country.

If the hashrate can be read as a health indicator of a blockchain, it remains above all a tool of comparison and does not necessarily predict the good or bad health of the price of crypto-assets.

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