- hash rate is the total computational power used by a proof-of-work cryptocurrency network to process transactions.
- a high hash rate is an indicator of the security of a network because it shows a lot of miners are verifying transactions.
- hash rates are measured by the number of calculations per second, which can be in the quintillions.
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Cryptocurrencies like bitcoin and ethereum are digital assets that you can buy or sell without having to use an intermediary, such as a bank or broker. instead, it completes transactions through a blockchain network made up of cryptocurrency miners from around the world. this network is protected by adding a layer of cryptography to each transaction. miners have to solve complex math puzzles to add them to the blockchain, and when they do, a hash is generated.
The security and health of a cryptocurrency network can be measured by its hash rate. this refers to the number of miners working to verify transactions and the speed at which they can generate hashes on a proof-of-work network. Here’s a closer look at what hash rate is and what you should know about this important metric.
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what is hash rate?
hash rate is a measure of the total computational power used by a proof-of-work cryptocurrency network to process transactions on a blockchain. it can also be a measure of how quickly a cryptocurrency miner’s machines complete these calculations.
miners use computers to perform calculations on complex mathematical puzzles based on transaction data. these systems generate millions or trillions of guesses per second about what the solutions to these puzzles might be. these are hashes, alphanumeric codes that are randomized to identify a single, unique piece of data.
The goal is to be the first miner to generate a block of transaction data that contains the correct solution and meets all the criteria to be considered valid. valid hashes on proof-of-work networks must be authenticated by other miners by measuring whether the proper amount of computational power was used to produce the hash. once the block has been validated, it is added to the chain and the miner receives a reward in newly minted cryptocurrencies.
“Blockchains need computers to process and validate transactions,” says David Kemmerer, CEO and co-founder of Coinledger. “the more computers that compete to validate transactions by trying to guess the next hash, the more secure the network becomes. therefore, the higher the hash rate for a given proof-of-work blockchain, the more secure it is and the less vulnerable it is to attacks that is.”
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Bitcoin and Ethereum, the world’s two largest cryptocurrencies, currently use proof-of-work to confirm transaction blocks before they are added to the network’s blockchain. Other cryptocurrencies, including bitcoin cash, bitcoin sv, dogecoin, litecoin, and monero, also use proof-of-work.
note: ethereum plans to move from proof of work to a proof of stake system in 2022. this is where miners commit a number of tokens for a chance to be selected to write the next block in the chain instead of running a race to be the first to generate a valid hash.
How is hash rate measured?
The hash rate is a measure of the number of calculations that can be performed per second, which can be in the billions, trillions, quadrillions, and quintillions, and is represented by the following notations:
- kh/s (kilo): hashes per second in thousands
- mh/s (mega): hashes per second in millions
- gh/s ( giga) : hashes per second in billions
- th/s (tera): hashes per second in billions
- ph/s (peta): hashes per second in quadrillions
- eh/s (exa): hashes per second in the quintillions
The way hash rates are represented can vary from network to network, and even miner to miner, because it depends on the speed of the computers being used and/or the number of miners on a network . for example, bitcoin uses the sha-256 cryptographic algorithm to calculate hashes and measures the hash rate in exhashes per second (eh/s). one exhash equals one trillion hashes. ethereum is currently measured in terahashes per second (th/s). one terahash equals 1 billion hashes.
“The total network hash rate is approximated by comparing the average time between blocks mined against the difficulty of the network at any given time,” says Matt Kunke, CFA and Research Analyst at Global X ETFs. “Currently, the bitcoin network has a hash rate of about 190 eh/s, so all miners on the network compute the output of the sha-256 cryptographic hash function about 190 quintillion times per second on average.”
why is hash rate important?
hash rate is incredibly important for cryptocurrency miners. Because they are constantly competing with other miners to be the first to generate a valid hash, they want their machines to solve the puzzles as quickly as possible. if they use teams with a lower hash rate than the competition, they won’t win the race to be first as often. if they work within a network that has a high hash rate, they are also competing with a large number of other miners. both affect the profitability of miners.
“The hash rate is a way to measure the probability that a miner will mine a block,” says kunke. “It is also a measure of how expensive a block is to mine, making it one of the key variables that determine the profitability of bitcoin mining. Since the bitcoin inflation schedule is predetermined, a hash rate of Higher network means you compete for more computational power.” the same fixed part of new bitcoins. If a miner keeps their hash rate constant while the network hash rate increases, the miner’s expected future bitcoin rewards will decrease while their costs remain constant, reducing profitability.”
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Investors also consider the hash rate as a measure of network security. The higher the hash rate, the more difficult it is for a bad actor to launch an attack on a network because there are more computers validating transactions.
“To hack a cryptocurrency, a hacker will need to own more than 51% of the network, which means more than half of the hash power,” says Sang Lee, CEO and co-founder of Vegax Holdings. “the higher the hash rate, the more expensive it is to attack the network, since more energy is needed.”
Note: It is possible for a miner or group of miners to purchase or lease enough mining equipment to control more than half of the computational power of a blockchain. this is known as a 51% attack. The higher the hash rate of a blockchain, the less likely this type of attack is possible.
Why is hash rate important to investors?
While cryptocurrency prices sometimes seem to move along with hash rate, the correlation is not always clear. some experts see little indication that hash rate influences cryptocurrency prices when looking at the long term.
Cryptocurrency prices, however, often have an impact on hash rates, according to Gabriel Wong, co-founder of Cyberdyne Tech Exchange.
“When bitcoin prices are high, the hash rate tends to increase as more miners join the network due to higher margins,” wong says. “As the price falls, the margin shrinks and fewer miners (especially the less efficient ones) can remain profitable.”
In the long run, hash rates tend to increase over time. increases in profitability are likely to drive more miners onto the networks. Advances in computer technology will also make mining more efficient and less expensive for miners. however, bitcoin is set to cut its mining reward in half by 2024, which will require more resources to be used to validate blocks, possibly leading to decreased profitability. It is not known how this will affect the hash rate of the cryptocurrency.
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