BTC Hashrate explained in Plain English📈
Bitcoin hash-rate is at an ATH and is still increasing day after day :
https://twitter.com/DocumentingBTC/status/1618640273382477829?t=T63hkyRBSPrx9nfPhAqrHA&s=19
But what exactly is a hashrate and why is it relevant to you and more importantly, what does a higher hashrate mean to the miners?
To understand hashrate, let us first understand what hashing means.
Hashing is basically the process of translating a given key into a code. It makes use of algorithms that transform blocks of data from a file in a much shorter value or key of a fixed length.
Think of it like compressing a file. While hashing is not compression, it can operate very much like file compression, as it takes a larger data set and shrinks it into a more manageable form.
Bitcoin uses the SHA-256 hashing function. ‘SHA’ stands for Secure Hashing Algorithm and '256' refers to the amount of 0s and 1s it generates
It will always generate '256' - 0s and 1s, no matter what the input is.
Whether you put your name, number or the entire dictionary, it will always generate '256' - 0s and 1s. Our computer then converts this 0s and 1s to actual numbers and letters which will always be equal to 64 numbers and letters.
So, if you input something like this,
"Please, like this medium post"
It will generate an output like this,
“7560c4e2d54842f0939b9f8e9e16d21e8c69c94afe5a524a6c3f56a9f993fd78"
The only thing constant will be the fixed amount of numbers and letters that it will generate which will always be 64.
This fixed length alphanumeric code is called 'Hash'.
And, Hashrate refers to the total combined computational power that is being used continuously to validate and process the transactions on a blockchain such as Bitcoin
It is measured in 'hashes per second'
Still confused?
Think of hashrate as a giant math competition that lots of computers around the world are taking part in.
Each computer is trying to solve a really tough math problem as fast as it can, and whoever solves it first wins a prize.
The more computers that are taking part, the harder the math problems become, so the competition gets more difficult.
And when the computers solve the problems, they help keep a big digital piggy bank called ‘Bitcoin’ safe and secure for everyone who uses it.
So, the more computers that are trying to solve the problems, the stronger and safer the ‘Bitcoin’ piggy bank becomes.
In other words,
- A higher hashrate indicates that more computational power is being used to validate transactions and mine new blocks.
- A higher hashrate can also indicate an increase in the popularity and overall value of Bitcoin, as more miners and mining pools are likely to participate in the network in the pursuit of higher rewards.
But what does a higher hashrate mean to the miners ?
When the hashrate of the network increases, the problems become more difficult, so miners need to invest in more powerful and efficient hardware to remain competitive. This leads to an increase in the overall cost of mining, as miners need to pay for electricity, hardware, and other expenses. In some cases, a higher hashrate can lead to a decrease in profitability for some miners, as the difficulty of the problems increases and the reward for solving them remains the same. This can lead to some miners leaving the network or switching to other cryptocurrency which can then result in a decrease in the hashrate.
Overall, a higher hashrate can be both a challenge and an opportunity for miners, as they need to balance the costs of mining with the potential rewards, while also ensuring the security and stability of Bitcoin.
