Tuesday 05 May 2015
TL;DR. Hash rate is a measure of the strength of the bitcoin network’s security, judged by the amount of processing power miners put into it.
You may have heard the term ‘hash rate’ in connection with the bitcoin network, and wondered what it was all about. Look no further. The hash rate refers to the amount of hashing power brought to bear on the bitcoin network by all the miners connected to it. It’s a measure of the security of the network, and it reflects the Difficulty – or how likely a miner is to generate the next block. The hash rate can be seen as a proxy for the health of the bitcoin network, because it represents the interest and investment of all the miners involved.
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Bitcoin are mined through a process called hashing. Computers find hashes, which are complex calculations, that fit a very specific set of criteria. The computer that finds the hash that meets that criteria first mines the block – adding it to the blockchain and receiving a reward of bitcoins in the process.
The more computers are involved in finding these hashes, the higher the Difficulty of the network and the more specific the criteria for a successful hash become. This is because if the Difficulty remained the same, blocks would be mined faster and faster as more processing power was brought to the network.
In the early days of bitcoin, Difficulty was very low as few computers were involved. As mining became more popular, the hash rate soared. Highly specialised chips called ASICS (application specific integrated circuits) were developed to do one thing only: find hashes.
The result is that mining bitcoins is now extremely competitive. The hash rate is around 340,000,000 GH/s, meaning that 340,000,000,000,000,000 or 340 million billion hashes are generated every second. Under these conditions, only the most powerful mining farms stand a chance of mining a block, which is why many miners combine their resources into mining pools.
The upshot is that electricity costs for many miners exceed the revenue they receive in bitcoins. When that happens, miners start to turn off their rigs, hash rate drops, Difficulty reduces and the remaining miners stand a chance of making ends meet. The security of the network also falls, because the amount of hashing power required to carry out a successful 51% attack is lower. But this is a minor consideration given the overall strength of the network, even now.