What is Hash?
A hash is a fixed-length string that is obtained when a data input (e.g. a text, file, etc.) is processed by an algorithm. This process generates a value that fully represents the content of the input. Hash functions take the input and produce a unique output, which works like a digital signature identifying the input.
Basic Properties of Hash Functions
- Deterministic
It always matches the same input with the same hash value. That is, the same data always produces the same hash output.
- Fast Calculation
Hash functions can quickly process large amounts of data and produce a fixed-length hash value.
- Irreversibility
Hash functions are one-way, which means that it is almost impossible to retrieve the original data from a given hash output. This property is important for security.
- Collision Resistance
The probability of two different inputs producing the same hash output is very low. This increases the security of hash functions and prevents collisions.
- Sensitivity to Changes
A small change in the input creates a large and unpredictable change in the hash output. This is another security feature of hash functions.
Hashrate refers to the number of computational operations that a cryptocurrency mining device or an entire network performs per second. Hashrate is an important metric that measures the efficiency and power of the mining process and is usually expressed in “hash/s” (hash per second). The size of the hashrate indicates how powerful the device or network is and how fast a block can be mined.
The Importance of Hashrate
- Network Security
Hashrate is one of the key elements of the security of a blockchain. A high hashrate indicates that the network is more secure and resilient to malicious attacks such as a 51% attack. A 51% attack is when a person or group controls 51% of the network’s total hashrate, allowing them to reverse their transactions or double-spend.
- Mining Difficulty
Hashrate affects mining difficulty. Mining difficulty is a measure of the computational power required to mine a block. If the hashrate increases, the network’s mining difficulty automatically increases to keep the average time to mine blocks constant. This is often observed on the Bitcoin network, which is adjusted every two weeks.
- Miner Revenue
Hashrate also affects the income of individual miners. A high hashrate means a higher chance of finding more blocks in a mining pool or individually. However, if the total hashrate of the network is also high, then the block reward for an individual miner may be relatively low.
How to Measure Hashrate
Hashrate is usually measured in terahash (TH/s), petahash (PH, s) or exahash (EH/s).
- Kilohash (kH/s): Thousand hashes per second
- Megahash (MH/s): One million hashes per second
- Gigahash (GH/s): One billion hashes per second
- Terahash (TH/s): One trillion hashes per second
- Petahash (PH/s): One quadrillion hashes per second
- Exahash (EH/s): One quintillion hashes per second
Factors Affecting Hashrate
- Mining Hardware: Hashrate directly depends on the type of mining hardware used. ASIC devices are specialized hardware optimized for mining specific cryptocurrencies and have the highest hashrate.
- Electricity Cost and Energy Efficiency: Miners’ energy costs can also affect hashrate. Miners located in regions with lower energy costs can be more competitive by operating equipment with higher hashrate.
- Network Difficulty: As the hashrate increases, the difficulty of the network also increases. This can cause miners to invest in more powerful hardware.
Impact of Hashrate on Cryptocurrency Prices
Hashrate can indirectly affect the prices of cryptocurrencies. A high hashrate indicates that the network is secure, and miners can earn profits through block rewards, which can increase investor confidence. However, an excessively high hashrate could mean increased electricity costs and reduced mining profits. This could cause some miners to cease operations and potentially lead to price drops.
There are multiple reasons for the cumulative increase in hashrate and mining difficulty. The most important of these reasons are technological advances, economic incentives and mining profits, halving, network security, and the self-regulation mechanism of the Bitcoin network.
When we examine the graph, we can see that as the price decreases, the miner difficulty decreases as the miner profitability decreases and therefore the hashrate decreases.
