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The question is: Why is the Bitcoin hashrate important?


The Bitcoin hashrate is an indicator of the level of security and decentralization of the Bitcoin blockchain.

Posted November 6, 2023 at 4:24 pm EST.

The Bitcoin hashrate plays a critical role in the Bitcoin network’s security and helps miners decide the economic viability of their participation. Read on as we define the Bitcoin hashrate, how it works, its importance, and its potential impact on Bitcoin’s price. 

What Is the Bitcoin Hashrate?

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The Bitcoin hashrate refers to the computational power that miners use to validate and process transactions on the Bitcoin network, measured in the number of calculations mining equipment can perform in a second.

A hash is a randomly generated alphanumeric code, and hashing is the process of guessing that code. The miners’ computers submit their best guesses based on calculations, with the goal being to be the first to guess the closest match to the hash. The hashrate tells us how many guesses occur on the network per second. 

The Bitcoin network is self-regulating, with the protocol automatically adjusting the mining difficulty every few weeks.

At its inception, the Bitcoin hashrate was low, allowing miners to use ordinary computers to validate transactions. As its adoption increases and leads to more mining activity, miners have had to use specialized computing equipment. 

How Does the Bitcoin Hashrate Work?

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The Bitcoin hashrate relies on the Proof-of-Work (PoW) consensus algorithm, which seeks to solve the double spending problem.

Bitcoin miners compete to solve mathematical problems, and the first to get the answer earns the right to add a new block of transactions to the blockchain. Its calculation measures the number of guesses a miner’s computer makes per second on the network. 

As of October 31, the Bitcoin hashrate is 517.70 EH/s. EH is a hashrate unit called Exahash that represents measurements of over one quintillion. A miner can use this number to estimate the expected returns once they add the electricity consumption and hardware costs to the equation. This way, they can decide whether the rewards are worth it. 

An increase in the number of Bitcoin miners leads to increased competition to solve mathematical problems. Maintaining a consistent block creation rate requires the network to adjust the complexity of the problems. This helps ensure the rate of addition of new blocks occurs at a predictable rate even when the hashrate changes. 

Why Is the Bitcoin Hashrate Important?

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The Bitcoin hashrate is critical in measuring the network’s decentralization level. A truly decentralized cryptocurrency network, such as Bitcoin, makes it highly difficult and costly for malicious actors to attack it.

A high hashrate indicates a truly decentralized network with many miners competing to validate transactions.

A malicious actor wishing to take control of the network would have to carry out a 51% attack. The trustless nature of the Bitcoin network requires that it follows the “longest chain rule.” The rule enables the group/individual controlling the hashrate’s majority to reorganize or block transactions, leading to double spending issues. 

This type of attack involves controlling most of the nodes. Given the Bitcoin network’s high hashrate, such an attack is improbable, given the cost of equipment and electricity needed to take over control of the majority of the miners’ nodes. 

Given that the hashrate indicates the level of decentralization, any sudden declines point to a possible attack. It points to a reduction in the cost to conduct a 51% attack, meaning malicious actors may find it feasible if the hashrate declines significantly. This helps exchanges safeguard their customers’ interests by halting trading to determine the status of the network’s security. 

Does the Hashrate Affect Bitcoin’s Price?

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There is no direct correlation between the Bitcoin hashrate and the price.

However, the hashrate is an indicator of the network’s security. With a high hashrate, attacks aren’t economically feasible due to the extent of the network’s decentralization. This can appeal to the market and increase confidence, potentially driving demand up and the price of Bitcoin with it. 

It’s important to note that there is no exact value for the Bitcoin hashrate. Most platforms use publicly available data to arrive at their number. However, there is debate regarding the widely adopted methodology.

Regardless, even without the exact hashrate or consensus on the ideal method to get a more accurate figure, Bitcoin’s hashrate plays a vital role in determining the network’s security and helping miners assess the economic viability of their efforts.

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