The term “hashrate” refers to the amount of computing power used by a network (such as the Bitcoin network, for example) to process transactions. It can be used by investors to assess the security and stability of a cryptocurrency’s network.
For cryptocurrency investors, hashrate is a key measure of how safe a coin’s proof-of-work network may be against hackers. This is done to make network attacks more costly and difficult as hashrate rises. If hashrate suddenly dips, crypto platforms may halt trade or delist a coin to protect its users.
How is Hashrate Measured?
A hashrate is a measurement of how many calculations can be performed per second and can be expressed in billions, trillions, quadrillions, and quintillions. For example, a hashrate of 1TH/s means that one trillion calculations can be finished per second.
These calculations that are being measured include mining. Mining is the process of adding and validating transactions to a blockchain network, like Bitcoin. The advanced machinery that cryptocurrency miners often use has a processing speed of several billion calculations per second.
In exchange for including and confirming transactions, miners are paid in bitcoin.
Since more miners are competing for the same incentives, a network’s hashrate often rises as the number of miners does. When there are fewer miners, the hashrate falls.
What Causes the Hashrate to Change?
There are several variables that can affect the hashrate. It is entirely up to the miners whose coin they wish to mine. Because mining incurs expenses, miners are encouraged to choose cryptocurrencies with the highest possible returns on investment (energy, hardware, and time).
High hashrates tend to indicate more competition, but the payment can still be worthwhile. For instance, miners were still encouraged to participate even if the Bitcoin hashrate reached 179 exahashes per second (1 exahash is equal to 1 quintillion), since the possible reward was substantial enough to justify the price.
Most of the time, when deciding which coins to pursue, miners assess the cost of mining a coin against its prospective reward. Take Bitcoin as an illustration. Every two weeks, the Bitcoin system changes the difficulty of mining new bitcoins based on hashrate.
When the hashrate is high, the mining difficulty is also high. Along with hashrate, difficulty also decreases. On the basis of the difficulty, miners can decide if it is profitable to mine a particular coin. It has a system of internal regulation.
What Happens if the Hashrate Increases?
A cryptocurrency’s hashrate determines how much computing power is required to verify and add transactions to the blockchain. This raises the security of that cryptocurrency because it would demand more miners and cost more in terms of energy and time to take over the network.