What does the hashrate of cryptocurrency depend on?
Bitcoin hashrate is a complex indicator that depends on different factors. How did it grow up in the past?
What is BTC hashrate? Bitcoin Hashrate explained in our complete guide: you will find out how it’s measured, how it changed, and what it depends on.
In October, Bitcoin hashrate updated its historic maximum of 109 EH/s, which doubled in the last six months. Since December 2017, when the coin was traded at a record high of $20 000, it has almost risen tenfold. The hashrate is a very important indicator of Bitcoin overall performance. It should be considered by Hashmart.io clients, when they buy cloud mining BTC contracts. Let’s take a closer look at all the factors that affect hashrate.
What is hashrate?
Hashrate is a parameter that indicates the speed at which mining devices used in the production of new blocks in Proof-of-Work (PoW) networks can solve mathematical problems. In other words, it is a measure of the overall equipment performance (computing power) used for mining.
Since the mathematical problems that need to be solved to generate new blocks are called hashes, the hashrate is measured in hash per second (H/s). The computing power of the Bitcoin network has been growing rapidly in the last 10 years since the advent of the cryptocurrency, and the equipment performance has also been constantly increasing, so there has been a periodic need to use more convenient units of measurement to express this indicator:
- 1 kH/s is 1,000 (one thousand) hashes per second
- 1 MH/s is 1,000,000 (one million) hashes per second.
- 1 GH/s is 1,000,000,000 (one billion) hashes per second.
- 1 TH/s is 1,000,000,000,000 (one trillion) hashes per second.
- 1 PH/s is 1,000,000,000,000,000 (one quadrillion) hashes per second.
- 1 EH/s is 1,000,000,000,000,000,000 (one quintillion) hashes per second.
Another important indicator for miners is the difficulty of Bitcoin mining, a parameter that reflects how time-consuming it is to perform mathematical calculations required to find a new block and get a BTC reward for it.
Difficulty is a dynamic characteristic that is inextricably linked to hashrate. The fluctuations in the total computing power of the network lead to a change in the time that new blocks take to find, which ideally should be 10 minutes.
To prevent significant acceleration or deceleration of the Bitcoin emission rate, the system adjusts the complexity value every 2016 blocks (approximately every two weeks).
Bitcoin network is self-regulating, without disturbing the balance between the amount of power connected to it, the difficulty of computing operations and the profitability of mining.
For example, if the price of Bitcoin falls to the point where mining becomes unprofitable, some miners disconnect from the network. The hashrate drops, the difficulty also decreases proportionally, and remaining participants in the network receive a reward of a size that motivates them to continue their activities. Once the price rises significantly, the number of miners will start to rise again, provoking increased computing power and complexity.
Both of these indicators, compared to the price of Bitcoin, are the main parameters that guide the assessment of energy efficiency and cost-effectiveness of mining equipment.
Factors that affect hashrate
In general, hashrate depends on a wide range of factors, including the selected algorithm of cryptocurrency mining. For example, some devices provide maximum performance within networks with SHA algorithm (Bitcoin, Namecoin, Peercoin, etc.), but their efficiency will be much lower in the network using Scrypt algorithm (Litecoin, Dogecoin, Gridcoin, etc.).
There is also equipment specifications, which differ depending on the manufacturer. It is recommended that those who plan to go into mining study basics about the performance of particular device in order to help in choosing the most optimal and cost-effective option.
One should not forget the popularity of the cryptocurrency itself: the more popular it is, the more miners are interested in its production. They connect their computing power to the network, thereby increasing its hashrate and, consequently, the difficulty of mining.
Hashrate dynamics in the past
The first days of Bitcoin
In the first year of its existence, Bitcoin network capacity was extremely low compared to today’s figures. At that time, hashrate was measured in megahash/sec (MH/s), i.e. in millions of hashes.
Initially, this indicator was supported by the developers’ equipment and a handful of enthusiasts close to them. Because of this, in the first month of 2009, the hashrate of Bitcoin was very unstable (4.5–10 MH/s). Then, until June, the network capacity became more stable and was mostly 5–6 MH/s, occasionally going beyond this range.
In June, hashrate dropped sharply and remained in the range of 1–4.5 MH/s for six months. In December, against the backdrop of the launch of the first Bitcoin trading platform of New Liberty Standard and the expansion of the circle of people aware of the first cryptocurrency, there was finally a sharp jump to 10 MH/s, which marked the beginning of a steadily rapid increase in the network computing power.
The next year saw an exponential growth of hashrate, triggered by the popularization of Bitcoin by mentioning it in some online media and the launch of the first full-fledged MtGox cryptocurrency exchange in July 2010.
The increase slowed down near 10 TH/s only after the hacking of the MtGox in June 2011. A month and a half later, hackers attacked the MyBitcoin wallet, after which BTC price went downhill until December, during this period the hashrate fell to 7 TH/s.
The whole year of 2012 the network capacity grows smoothly (in proportion to the movement of the BTC rate) and by the time of the first halving of Bitcoin (November 28) reaches 29 TH/s. Halving the award scared off some miners, causing the hashrate to drop to 18 TH/s in just 2 weeks.
For the first half of 2013 the network computing power increases 10 times and reaches 200 TH/s (during this time Bitcoin price increases from $14 to $266). Then, in the remaining period until the end of the year, hashrate grows even faster and reaches 17 PH/s (by this time Bitcoin is traded at $1240).
Despite the bearish market trend provoked by the new hack and closure of the MtGox exchange in 2014, the computing power of the Bitcoin network grew steadily to 300 PH/s.
In January 2015, Bitstamp, the cryptocurrency exchange, reported the loss of 19 000 BTC due to a hacker attack. This event sets the tone for the whole year — the Bitcoin price was consolidating in the range of $200–300, and the hashrate was slowly moving to the level of 400 PH/s.
At the end of October, European Court of Justice frees Bitcoin-holders from taxes on the sale of cryptocurrency, which provokes a spurt in the price of BTC up to $500. This gives an impetus to a new wave of Bitcoin popularization and, as a consequence, accelerates the growth of network capacity to 770 PH/s by the end of the year.
At the end of January 2016, for the first time, the hashrate reaches the value of 1 EH/s (1000 PH/s). This year, Bitcoin doubles in price (from $500 to $1000). The same thing happens with the computing power — by December it doubles and overcomes the 2 EH/s mark.
Last three years
In the first half of 2017, there was an acceleration in the growth of hashrate. By August, it reaches 7 EH/s and then falls to 4.3 EH/s due to the transition of some miners to Bitcoin Cash, the hard fork of Bitcoin.
Over the next three months, the network’s capacity almost tripled (11.5 EH/s). By this point, the price of Bitcoin reaches $8000 on the background of extensive media coverage and the expected hardcore SegWit2x, after which there is a brief price correction to $5800 and a decrease in the hashrate to 4.9 EH/s. Till the end of the year Bitcoin value continues to grow rapidly up to $20 000, attracting more and more attention of miners, who manage to increase computing power up to 15 EH/s in just a month.
2018 begins with negative news about the closure of the crypto exchange in South Korea, accompanying the beginning of downtrend, from which the market will eventually not be able to get out more than a year. Despite this, Bitcoin hashrate continues to grow non-stop until October, reaching 58–60 EH/s. This is explained by the fact that mining remains profitable as long as Bitcoin is traded above $6000.
The situation changes on November 14, when the rate of Bitcoin abruptly goes under the $6000 level and continues to fall until mid-December, stopping at the level of $3100. By this point a significant part of the miners which have not sustained a pressure of bearish market is disconnected from a network, and computing power of a network decrease to 35 EH/s.
During the first four months of 2019, while the Bitcoin rate consolidated at $4000 and then suddenly rise to $5000, the hashrate increased slightly and remained in the 40–50 EH/s range.
In the middle of May, the BTC value finally turned out to be above $6000 again, and then it reached $8000, bringing back faith in the rapid price growth. For the first time hashrate returned to the maximum value of last year — 58 EH/s.
At the time of writing, Bitcoin is trying to overcome the $7200 mark and the hashrate has risen to 84 EH/s. Taking into account the statistics of previous years, the growth of computing power should continue. The difference can only be in its rate, which will depend on the further movements of the Bitcoin price.