What Is Hashrate and Why Does It Matter?
Hashrate is a key concept to understand for Bitcoin miners. We've got all you need to know about hashrate, including what it is, how it's measured, and more.
What is hashrate?
A hashrate measures the computational power used in a proof-of-work (PoW) blockchain consensus mechanism. It represents the number of guesses made per second by computers in an attempt to solve complex cryptographic puzzles.
These puzzles are integral to validating transactions and securing the blockchain. The hashrate can be measured at various levels: by individual miners, mining pools, or the entire network.
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How is hashrate determined?
The hashrate is determined by the number of hash guesses made per second. Each guess involves trying to find a value that matches or is lower than the target hash set by the network. This process is crucial for mining, as it determines who gets to add the next block to the blockchain and receives the block reward for doing so.
Why does hashrate matter?
Hashrate is important for several reasons:
Security: A higher hashrate means more computational power is needed to alter the blockchain, making it more secure against attacks. Networks with high hashrates are less susceptible to a 51% attack, where a malicious actor gains control of most of the network's hashrate to manipulate transactions.
Mining difficulty: The hashrate influences the difficulty of mining. As the hashrate increases, the network typically adjusts the mining difficulty to maintain a consistent block time. This self-regulating mechanism ensures that blocks are added at a steady rate, regardless of the number of miners.
Network health: A high hashrate indicates a healthy and active network with many participants, which enhances decentralization and reduces the risk of manipulation.
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How is hashrate measured?
Hashrate is measured in hashes per second (h/s). The most common units of measurement are:
Kilohash (kH/s): 1,000 hashes per second.
Megahash (MH/s): 1 million hashes per second.
Gigahash (GH/s): 1 billion hashes per second.
Terahash (TH/s): 1 trillion hashes per second.
Petahash (PH/s): 1 quadrillion hashes per second.
Exahash (EH/s): 1 quintillion hashes per second.
Zettahash (ZH/s): 1 sextillion hashes per second (not yet reached).
For example, the Bitcoin network's hashrate grew from 268 EH/s to over 500 EH/s in 2023, reflecting the substantial computational power dedicated to securing the network.
What happens when the hashrate increases?
When the hashrate of a PoW blockchain network increases, several things occur:
Increased security: More computational resources are being used, making the network more secure and resistant to attacks.
Higher energy consumption: More electrical power is consumed as more miners join the network.
Increased mining difficulty: The network adjusts the difficulty of mining to maintain a consistent block production rate, making it harder to mine new blocks.
Competitive mining: With more miners competing, individual miners may find it more challenging to earn block rewards.
What happens when the hashrate decreases?
When the hashrate decreases, the opposite occurs, including:
Decreased security: The network becomes less secure and more vulnerable to attacks, such as a 51% attack.
Lower energy consumption: Less power is consumed as fewer miners participate.
Decreased Mining Difficulty: The mining difficulty adjusts downward, making it easier to mine new blocks.
Reduced competition: Fewer miners compete for block rewards, potentially making it easier for remaining miners to earn rewards.
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Why is hashrate important for network security?
The hashrate is a key indicator of a blockchain network's security. A higher hashrate means more miners are contributing computational power, making it difficult for any single entity to gain control and this decentralization is vital for the integrity and security of the network.
A lower hashrate makes the network more vulnerable. With fewer miners, it becomes easier for a malicious actor to control over 50% of the hashrate, allowing them to potentially alter transactions and disrupt the network. This type of attack, known as a 51% attack, can have severe consequences for the trust and functionality of the blockchain.
What’s a 51% attack?
A 51% attack occurs when a single entity or group controls more than half of a network's hashrate.
This majority control allows them to manipulate transactions, double-spend coins, and prevent new transactions from being confirmed. While such attacks are rare due to the high cost and computational power required, they pose a significant risk to smaller or less decentralized networks.
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What’s Bitcoin’s hashrate?
Bitcoin's hashrate has seen significant growth over the years. At the time of writing, the Bitcoin hashrate is 725.99M TH/s.
How does hashrate impact mining rewards?
A higher hashrate generally leads to higher mining difficulty, which affects the rewards miners can earn.
In a competitive environment with a high hashrate, individual miners or small pools might struggle to mine blocks and earn rewards. Larger pools with substantial computational power have a better chance of solving the cryptographic puzzles and claiming the rewards.
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How can miners optimize their hashrate?
Miners can optimize their hashrate by using specialized hardware designed for high efficiency. These devices, known as ASICs (Application-Specific Integrated Circuits), are built to perform the hashing algorithms used in PoW networks like Bitcoin. Additionally, miners can join mining pools, which combine the hashrates of multiple miners to increase the chances of earning rewards.
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Where can I see current hashrates?
Several websites track the hashrates of popular PoW networks including Blockchain.com and Minerstat. These resources allow miners and investors to monitor network activity and make informed decisions.
How does hashrate affect energy consumption?
The hashrate is directly linked to the energy consumption of a PoW network. Higher hashrates mean more miners are operating, which increases the overall energy usage.
This has raised concerns about the environmental impact of crypto mining, particularly for networks like Bitcoin, which require substantial power to maintain their high hashrates. As such, some networks like Ethereum have switched to a Proof-of-Stake (PoS) consensus mechanism.
Don’t forget the tax bill…
One last note, crypto mining rewards - whether that’s BTC, DOGE, LTC, or any other PoW coin - come with a tax bill. Your mining rewards are generally subject to Income Tax upon receipt and may also be subject to Capital Gains Tax when you sell them. Learn more in our crypto mining tax guide.
