Bitcoin’s rising hash rate
It’s been a wild ride for Bitcoin (BTC) this year. The godfather of all cryptocurrencies crossed the $10K mark in February, before nosediving towards its 2020 record low of $3.8K , then rallying back up towards $12K this month.
Prices aside, Bitcoin has also reached All-Time-High (ATHs) for its hash rate.
On Aug 16 2020, its hash rate hit a record high of 129.075 exahashes per second (EH/s)!
Why does this matter? Does it affect the price of Bitcoin and you as a Coinhako user?
Credit: @tank.sinatra
What is a hash rate?
Whenever one party sends Bitcoin from one address to another, the transaction would only be successful when it is validated and recorded on the blockchain. This process is known as hashing – where the transaction data is encrypted and compressed into a data block that joins a series of connected blocks on a network, aka the blockchain.
Hashing on bitcoin is achieved through a concept known as proof-of-work – more commonly known as mining – which helps to maintain the validity of transactions on the blockchain.
The hash rate measures the amount of processing power there is on the Bitcoin network to process the transactions.
How is the hash rate calculated?
The hashing power is estimated from the number of blocks being mined in the last 24 hours and the current block difficulty.
What does a higher hash rate mean?
1) More bitcoins are being mined
The most obvious of which is that a higher hash rate for an individual machine means that a higher number of bitcoins are being mined by the machine.
2) Increased mining difficulty
The difficulty of mining bitcoin changes fortnightly, depending on hash rate or every 2016 blocks. When there are more mining devices on the network, the hash power increases – which means it is more difficult for miners to mine bitcoin.
3) Better Security
Most importantly, a higher hash rate means that more miners are putting in the work to ensure the fluidity of Bitcoin’s network. This includes enhanced security and cyber health of the Bitcoin network. A higher hashrate is associated with increased difficulty of the puzzles, more miners, and more computational resources, which generally means that the network is more secure and more resilient against 51 percent attacks.
Did The Bitcoin Halving Affect the Bitcoin Hash Rate in 2020?
Bitcoin’s hash rate over 1 year period. Source: Blockchain.com
The Bitcoin hash rate reached its first high on March 8, during a price rally following the stock market crash in the wake of the initial coronavirus outbreak.
After the May 11 Bitcoin halving, small, independent miners were forced to close up shop after mining rewards were slashed in half, causing Bitcoin’s hash rate’s decline to approximately 90 EH/s.
Did the number of miners decrease after the Bitcoin halving? You can check it out ➡️ HERE.
When Bitcoin broke $12K USD in August and led the bull run in crypto prices, the hash rate surged towards the 120s, reaching a new ATH of 129.075 EH/s on August 16 2020.
Today, the hash rate is nearly double of what was recorded in August 2019.
Does the hash rate affect Bitcoin’s price?
Sentiments regarding the correlation between the hash rate and Bitcoin’s price are divided.
One camp argues that price follows hash rate because a higher, or rising hash rate suggests greater miner confidence — a higher hash rate shows that miners are more willing to invest computational power to verify transactions, because they are bullish about Bitcoin.
Former Wall Street Trader and Bitcoin advocate Max Keiser subscribes to the price-follows-hash rate mentality.
In a tweet on Jul 8, 2019, Kaiser wrote : “The constant 10-minute emission schedule of #Bitcoin is the lure that will always attract miners - even acting irrationally - that pushes up the hash rate with price following.”
The other side of the debate argues that hash rate follows price. Based on the fact that miners are incentivised by Bitcoin and incur electricity costs in their local currency, ramping up the hash rate during a bear market would not make economic sense for them.
So WHY are we writing this?
Because the hash rate impacts Coinhako users.
The amount of hash power available on the network affects how quickly transactions on the blockchain can be verified and added into each block. This essentially means that a lower hash rate is associated with a longer processing time for transactions, and there have been occasions when transactions were significantly delayed due to a lack of hash power.
Typically, the Bitcoin network would validate blocks at about a rate of 6 blocks per hour (10 minutes per block).
To avoid having your transactions delayed, you can check the network’s mining power on Blockchain.com before processing any transactions.
At the time of writing, the average Bitcoin’s hash rate was sitting around 122 exahashes per second.
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