Hashrate refers to the computing power needed to mine new units of cryptocurrency. This term is used regularly, which makes it possible to better understand the issues facing the blockchain.
Proof of stake, burning, stabilizing, mining, halving… To understand the world of cryptocurrency, you must be prepared to deal with a plethora of English terms, with complex names that can be intimidating. Most of these words refer to particularly critical steps for cryptocurrencies, and it takes a while to read before you can tell exactly what’s going on.
Among all these seemingly ambiguous terms, Nomirama now attacks hash rate or hash rate in good French. A word that does not define a process per se, but it is nonetheless extremely important to know so that you can understand all the challenges of mining bitcoin and other cryptocurrencies.
What is the cryptocurrency hash rate?
Very simplistically, the hash rate determines the total computing power on a network used to validate new blocks of a chain, in time T. Here, the networks in question are the blockchain networks, for example, the bitcoin network. Thus, the hash rate of the Bitcoin network corresponds to the power of all computers in all mining farms combined.
A hash is a value expressed in a hash per second, hence the name, a hash that represents an arithmetic operation being performed. At the time of writing this article, May 20, 2022 at around 11 am, the Blockchain website estimated it to be at 187.974 EH/s (exahash/s). This represents Much Arithmetic operations per second: exahash corresponds to a quintillion arithmetic operation per second. What is a quintillion? According to Wikipedia, this is a billion trillion, or more simply, 1,000,000,000,000,000,000,000,000, so this is a very complex calculation.
For comparison, the hash of Ethereum is much lower. According to data from Etherscan, it averaged 1,126,674.2703 GH/s (gigahashes/sec) on Friday, May 13, 2022. A gigaherte hash “only” represents a billion hashes per second, or the required computational power which is much less than that from bitcoin.
The hash rate of Bitcoin and Ethereum has not always been so high. In the early days of cryptocurrencies, before they gained popularity, their hash value was much lower – all things considered. Shortly after its creation, Bitcoin had a “only” 948kHz hash rate according to Coinwarz, and the lowest recorded Ethereum hash rate was 11.5297GHz, according to Etherscan.
What is the hash rate used?
But what is the point of making such complex calculations? It is important first of all to specify that the hash rate is only present in the blockchain that operates on the working protocol.
Roughly speaking, a blockchain is a type of large ledger that operates in a decentralized manner, that is, there is only one person who can write in it, or have the power. But how do we ensure the integrity of this big book, and make sure that the hacker does not record a fake amount of money on his own account, for example? To avoid this scenario, verification mechanisms have been put in place. These mechanisms are called protocols.
There are several types of protocols, which Numirama details in another article, but there are generally two main systems: Proof of Stake, or Proof of Stake (used by Cardano or Solana), and Proof of Work, which is used by both Bitcoin and Ethereum. (So far).
In proof-of-stake, validators (people whose role, as the name suggests, is to validate operations and ensure there are no misinformation) compete to validate new blocks by snapping up a portion of their holdings of cryptocurrencies.
In a Proof of Work system, it is up to miners to validate the blocks by answering highly complex equations – too complex to require a high hash rate to be able to be solved. We must add to this one of the peculiarities of bitcoin: a new block always takes 10 minutes to be mined. Thus, the difficulty of the calculations is adapted to the number of miners on the network, so that this time is respected.
During the early years of Bitcoin’s existence, there were very few miners active on the blockchain: thus the competition was not very strong, and the hash rate was very low. But with the increase in the popularity of bitcoins, more and more miners are added to the blockchain, which increases the computing power available and, consequently, the difficulty of calculations.
But the opposite is also possible: in June 2021, when mining was banned in China, we saw a huge drop in available computing power, with the country accounting for nearly half of the world’s hash rate. For a while, it was (slightly) easier to mine bitcoin, before adjusting for difficulty. Since then, the hash rate has returned to, and even exceeded, its pre-ban level. Chinese miners partially settled in neighboring Kazakhstan, or set up clandestine mining networks.
The hash rate is, finally, an indicator of the health of the blockchain: a large number of miners on the network indicate that many people are placing their trust in the project. Above all, the more difficult the calculations, the more secure the information. as such observed Cryptocurrency expert Jameson Loeb at the start of 2022, for a hacker to attack and manipulate the Bitcoin blockchain today, even with access to all global hash rates, would take more than two years of accounts to be able to rewrite the chain.
However, the hash rate remains an indicator that should be taken in hindsight: it therefore does not represent the price of cryptocurrencies. For example, Bitcoin has been in a sharp decline in its value for several months, which is not reflected in the hash rate. Global computing power is also sensitive to factors outside of bitcoin, whether it be political decisions (such as China), but also electricity prices. If the latter increases to the point where it is no longer profitable for miners to continue their activity, the hash rate will decrease. This is what happened in November 2020 in the Sichuan region of China, when the end of the rainy season marked the end of cheap electricity for mining farms in the region, who thus preferred to cease their activity.