In summer 2021, Bitcoin’s hash rate collapsed from record heights and, with it, the price of Bitcoin. Evidently, hash rates are very important, but why?
What is a hash rate?
The Bitcoin blockchain works with a proof-of-work consensus mechanism, where miners solve difficult computational puzzles to receive a reward in the form of new bitcoins. The hash rate is the amount of computing and processing power contributed to this mining process. Bitcoin miners don’t work with regular computers but with ASICs (application-specific integrated circuits), special processors that have only one task: making millions of guesses per second to solve the computational puzzle and earn the reward. The higher the hash rate, the more ASICs are working on this task and the more secure the blockchain.
Why are hash rates important?
If more processors are solving puzzles and the hashrate is bigger, it means a cheating miner would require even more processing power to solve the puzzle before honest miners do. This is the essence of a 51% attack. As long as honest miners control at least 50% of a blockchain, this majority reaches a consensus on the true state of transactions. The higher the hash rate of this honest majority, the more difficult an attack becomes.
That is why the Bitcoin blockchain is considered to be the safest blockchain in the world. It is backed up by the biggest hash rate, making a 51% attack on it prohibitively expensive. Other proof-of-work blockchains, for instance Ethereum Classic, have suffered multiple 51% attacks as a result of their comparatively low hash rate.
The Bitcoin hashrate
Hashrates are measured in hashes per second (h/s). The Bitcoin hash rate hit its record in April 2021 – 198 quintillion h/s. That would be a million million millions, or 1,000,000,000,000,000,000. On a daily basis, Bitcoin’s hash rate can fluctuate quite significantly, up to 10% per day. That’s due to analysts estimating the hash rate, as it cannot be measured precisely.
Bitcoin’s price and its hash rate are connected in a virtuous circle. The more the price of Bitcoin increases, the more likely an increase of its hash rate becomes. The higher Bitcoin’s hash rate, the more secure the network, making a price increase more likely.
Despite this relationship, the hash rate does not depend only on the price of Bitcoin. Miner profitability is also influenced by the price of electricity, which is why the hash rate can fluctuate in different regions as miners adapt to price changes.
Conclusion
A high hash rate is good for Bitcoin (and for every other proof-of-work blockchain). However, a high hash rate also means more processors are mining, meaning more energy is being used, which results in Bitcoin leaving a bigger carbon footprint. That is why Bitcoin opponents often use a big hash rate as a sort of proof of the blockchain’s wastefulness. Still, it’s important to keep in mind that a hash rate in itself cannot be negative. Whether Bitcoin uses too much dirty energy is, first and foremost, dependent on its energy mix, not on the amount of electricity required to power the processors mining new coins.