Hashrate refers to the computing power needed to mine new units of cryptocurrencies. This is a term that is regularly used, and which makes it possible to better understand the issues that blockchains face.
Proof of stake, burn, stablecoin, mining, halving… To understand the world of crypto-currencies, you have to be prepared to deal with a large number of English terms, with convoluted names that can be intimidating. Most of these words point to particularly crucial steps for cryptos, and it takes some time to read before you can figure out what exactly is going on.
Among all these terms that may seem obscure, Numerama is now attacking the hashrate, or hash rate in good French. A word that does not designate an operation in itself, but which is nevertheless crucial to know in order to be able to understand all the challenges of mining bitcoins and other crypto-currencies.
What is the cryptocurrency hashrate?
Very simplistically, the hashrate designates the total computing power on a network used to validate the new blocks of a chain, at a time T. Here, the networks in question are those of blockchains, for example, that of bitcoin. The hashrate of the bitcoin network therefore corresponds to the power of all the computers of all the mining farms combined.
The hashrate is a value expressed in hashes per second, hence its name, a hash representing a calculation performed. At the time this article is written, May 20, 2022 around 11 a.m., it is estimated by the Blockchain site at 187.974 EH/s (exahash/second). This represents a lot calculations per second: an exahash corresponds to a quintillion calculations per second. What is a quintillion? According to Wikipedia, this is one billion trillion, or, more simply, 1,000,000,000,000,000,000,000,000,000,000. So these are extremely complex calculations.
For comparison, the hashrate of Ethereum is much lower. According to data from Etherscan, it averaged 1,126,674.2703 GH/s (gigahash/second) on Friday, May 13, 2022. A giga hash represents “only” one billion hashes per second, or a power of calculation requested which is much lower than that of bitcoin.
The hashrate of bitcoin and ethereum have not always been so high. In the early days of cryptos, before they gained popularity, their hashrates were much lower — all things considered. Shortly after its inception, bitcoin’s hashrate was “only” 948 KH/s according to Coinwarz, and the lowest ethereum hashrate on record was 11.5297 GH/s, according to Etherscan.
What is the hashrate used for?
But what is the point of having such complicated calculations to perform? It is first of all important to specify that it is only on blockchains operating on a proof of work protocol that the hashrate exists.
Blockchains are, roughly speaking, a kind of large account books that operate in a decentralized way, that is to say that there is not only one person who can write in them, or who has authority. above. But how to ensure the integrity of this large book, and be sure that a hacker does not register a false amount of money on his own account, for example? To avoid this scenario, verification mechanisms have been put in place. These mechanisms are called protocols.
There are several types of protocols, which Numerama details in another article, but there are generally two main systems: proof of stake, or proof of stake (used by Cardano or Solana), and proof of work, which is used by bitcoin and Ethereum (for now).
In a proof of stake system, the validators (people whose role is, as their name suggests, to validate the operations and ensure that there is no erroneous information) compete to validate the new blocks by staking part of their possession in crypto-currencies.
In a proof of work system, it is up to the miners to validate the blocks by answering extremely complex equations – so complex that they will require a high hashrate so that they can be solved. We must add to this one of the particularities of bitcoin: a new block always takes 10 minutes to be mined. The difficulty of the calculations therefore adapts to the number of miners on the network, so that this time is respected.
During the first years of bitcoin’s existence, there were few active miners on the blockchain: the competition was therefore not very strong, and the hashrate was quite low. But with the increase in the popularity of bitcoins, more and more miners have been added to the blockchain, increasing the computing power available, and therefore the difficulty of the calculations.
But the opposite is also possible: in June 2021, when mining was banned in China, we saw an impressive drop in available computing power, as the country accounted for almost half of the world’s hashrate. For a while, it was (a little) easier to mine bitcoin, before the difficulty adjusted. Since then, the hashrate has returned to its pre-ban level, and even surpassed it. Chinese miners have partly settled in neighboring Kazakhstan, or have set up clandestine mining networks.
The hashrate is, finally, an indicator of the health of a blockchain: a large number of miners on a network indicates that many people place their trust in the project. Above all, the harder the calculations, the more secure the information. Like noted it crypto-currency expert Jameson Lopp at the start of 2022, for a hacker to be able to attack and manipulate the bitcoin blockchain today, even with access to all the global hashrate, it would take more than 2 years of calculations to be able to rewrite the chain.
However, the hashrate remains an indicator to be taken with hindsight: it is thus not representative of the price of cryptos. For example, bitcoin has been in a steep decline in value for months, which is not reflected in the hashrate. Global computing power is also sensitive to factors outside of bitcoin, whether political decisions (like that of China), but also the price of electricity. If the latter increases to the point where it is no longer profitable for miners to continue their activity, the hashrate will drop. This is what happened in November 2020 in the Sichuan region of China, when the end of the rainy season marked the end of inexpensive electricity for mining farms in the region, who had therefore preferred to cease their activity.