Maker Minds Hub — Hashrates
Hi, Maker Minds!
Welcome to another edition of Maker Minds Hub! In the last edition, we talked about Rollups, and today we’re going to take a dive into hashrates.
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The business of mining crypto like Bitcoin is booming. This activity is, in fact, showing historic levels of profitability. Are you interested in Bitcoin mining or crypto mining in general? Then, you have probably already heard of the hashrate? The hashrate is a measure that is closely followed by blockchain professionals. What is the hashrate of a crypto like Bitcoin and what is it used for? How important is it?
What’s a hashrate?
By definition, the hashrate is a unit of measurement like the km/h for example. A hashrate is a unit of measurement used to quantify the mining or computing power of a machine per second in the context of crypto mining. At the beginning of mining, personal computers could perform this operation. Today this is no longer the case, ultra-high performance machines are needed to do the job.
The Hash Rate is measured in hashes per second (h/s). There are several units:
1 MH/s = 1,000 kH/s
1 GH/s = 1,000 MH/s = 1,000,000 kH/s
1 TH/s = 1,000 GH/s = 1,000,000 MH/s = 1,000,000,000 kH/s
For example, a hashrate of 80 Kh/s means that your computer hardware is capable of computing 80,000 hashes per second.
Why is it important?
It takes an average of 10 minutes to mine a block on Bitcoin. This time is kept fixed by increasing the level of mining difficulty. Every 2016 blocks or so, the difficulty of mining a block is readjusted. Thus, even if there is an influx of miners and an increase in the computing power involved, the mining time of a block always remains fixed.
In order for a miner to receive a reward, he must find the right hash first. This induces a very large number of operations. For example, it should be known that on average, the hash is found after 2^71 iterations! So it's easy to see how important it is to have powerful hardware for Bitcoin mining.
A powerful hardware is a computer with a high hashrate. Indeed, the higher the hashrate of a machine, the more hash you can calculate. On the other hand, the more powerful the hardware is, the more expensive it is. Finally, the power consumption of a powerful machine is more important. To calculate the profitability of your mining activities, don't forget to take all the parameters into account.
What factors influence hash rates?
The hashrate level varies depending on the computer resources dedicated to mining. It depends on the quantity of transactions that 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 is, the more difficult the mining is. It's a bit like a gold mine: the more you dig, the harder it is to dig.
It also depends on the price of Bitcoin and Ether. The higher the prices, the more profitable and attractive the mining is. Thus, the activity is attracting more and more miners.
An important fluctuation factor is the cost of electricity. Indeed, the activity of mining is very energy consuming and costly in electricity. Thus, the hashrate can be impacted in an unpredictable and random way by climatic elements, as during the increase in the price of electricity linked to heavy rains in the Chinese region of Sichuan in August 2020.
It is also easy to deduce that new, greener and cheaper sources of energy (such as volcanic energy in El Salvador) can increase the profitability of mining, thus attracting new miners, and pushing hashrate up.
Finally, the main disruptive element remains the policies of the countries where the miners are located. A policy of subsidies or, on the contrary, a new tax on mining activities can encourage or dissuade miners.
What are the hashrates 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 trending upwards since 2009, and especially since the blockchain acceleration since 2018.
Historically, the main drops in Bitcoin hashrate levels have been linked to China's policy measures, notably in November 2020, due to an increase in electricity due to rains in Sichuan, then in June 2020, following electricity restrictions for Chinese mining farms, and especially between May and July 2021, with the gradual banning of mining and cryptocurrencies.