There is a number of crazy looking lingo that goes along with having a true understanding of bitcoin. Outside of serious investors, developers, and invested miners, few of these bitcoin specific terms have a fundamental impact on your investment in bitcoin. As a novice investor, it may be most beneficial to look towards Bitvavo, or another exchange that is dedicated to helping new investors figure out how bitcoin and other cryptocurrencies work.
But regardless of whether you are new to the world of crypto, or have owned bitcoin since the beginning- you may want to take a minute and learn a bit about hash rate- not just because it’s been making headlines of late, but because it may help guide choices and investments you’ll make in the future.
What is Harsh Rate?
Hash rate, in terms of bitcoin functionality, is the metric used to measure how much computing power globally, is being dedicated to the bitcoin network. To really be able to understand how hash rate works, you’ll need to know about bitcoin mining. Bitcoin Mining is essentially the process by which transactions across the bitcoin network are validated, but the process also plays the role of issuance of freshly minted bitcoin, and helps keep the bitcoin network secure and decentralized.
To keep it really, really, simple; bitcoin is mined by individuals using advanced hardware to solve intensely complicated mathematical algorithms. Once any given computer finds the solution to any given problem, the associated transaction is considered valid and added to the blockchain- bitcoin’s public ledger system. When a transaction is performed, it is assigned a “hash” which is basically a cryptographic string of 64 unique characters. The computers that are attached for a network use the transactional hash to find a specific output, or number. Once this number is achieved, the transaction is validated and added to a “block” of other transactions. Once that block is filled with 1 MB of information, that block is added to the bitcoin and the miner is rewarded freshly minted bitcoin.
So “hash rate” is the speed at which a miner can successfully mine a block. The more miners that are competing for these solutions, the more quickly solutions are found, the higher the hash rate. But an increased hash rate doesn’t necessarily mean faster transactions… So why is it important?
What Does Regional Hash Rate Tell Us?
Hash rate can give a peek into a few different functions of the bitcoin network. As mentioned before, it helps keep the network decentralized and safe- but it also can give users an idea of where in the world mining is actually happening. Which can give an idea of where bitcoin adoption is at its highest, and let users keep an eye out for the propensity of a “51% attack” occurrence. Stick with us.
Safe and Decentralized
The way that hash rate keeps the network secure, is by helping to better spread out the responsibility for validating transactions: in a word- decentralized. The higher the hash rate, the more computers that are on the network competing to solve equations. The more computers, the more decentralized the network is. As hash rate increases, the mathematical algorithms become more and more difficult to solve- requiring more and more computational input. If the hash becomes too difficult to solve, and hash rate drops, the algorithms adjust and become easier to solve- allowing a more varied field of miners to join.
This helps to ensure that more than just one or two miners could take over the entire network- essentially requiring there to be a huge number of miners on the network at any given time, which is how bitcoin protects against the feared “51% attack”.
A 51% attack essentially expresses the concern that a small group of miners could overtake 50% of the mining responsibility, which means that they could theoretically control the network- allowing them to block certain transactions and double spend their own bitcoins. Because hash rate is controlled via mining difficulty, it’s near impossible for only a small number of miners to be able to take control of the system, as when mining difficulty increases, more miners are needed to solve equations.
Thus- keeping the network decentralized and secure.
Regional Hash Rate
Regional hash rate can give users an idea of how healthy bitcoin’s network is at any given time- showing a real time value of how many miners there are in any given region of the world. This can give users a sense of how popular or lucrative bitcoin investment is in a geographical location, it can also suggest how valuable bitcoin is on a global scale- showing just how many people are interested in not only transacting, but mining bitcoin.
A Final Word on Bitcoin Hash Rate
It’s important to remember that Bitcoin hash rate doesn’t tell you exactly how much a bitcoin is worth, or speed up the transaction rate of bitcoin. The network is specifically designed to mine a block roughly once per ten minutes. This speed is controlled by hash difficulty (remember that?). If blocks are being mined faster- difficulty increases. If they are being mined slower, mining difficulty eases. Thus, keeping that precarious balance of disseminated miner power.
As far as intrinsic bitcoin value goes, hash rate won’t really tell you that either. Mostly because the hash rate tends to follow the price of bitcoin- not the other way around. Because when bitcoin prices surge, miners don’t mind investing the thousands of dollars’ worth of equipment and energy costs that go along with mining- as the mining rewards are worth more at that point.
What hash rate does tell you is how healthy the network is, how many people are interacting with it, and where they are interacting from. This is because the amount of miners that are willing to spend all that money mining wouldn’t be very high if the rewards weren’t so sweet. So, hash rate speaks directly of network confidence. Which can all be really useful information when it comes to becoming a miner, or investing in bitcoin itself.