Every second, thousands of computers on the Bitcoin (BTC) blockchain crank out trillions of complex codes (aka hashes) in one of contemporary finance’s fiercest competitions. Thanks to this seemingly chaotic guessing game, Bitcoin has managed to secure its global network and consistently post accurate peer-to-peer (P2P) transfer data.
But Bitcoin’s proof-of-work (PoW) design poses unique challenges. There’s no way to enforce energy usage on decentralized blockchains, so regulating the number of computers on the Bitcoin network and their power usage is impossible. Also, blockchain validators are able to turn off their mining rigs at any moment, adding uncertainty to a PoW blockchain’s integrity and security.
To ensure there’s always a robust community of computers on PoW blockchains, traders often turn to a metric called hashrate. Let’s explore what hashrate is and how to calculate it to understand a cryptocurrency’s health and the digital economy’s state.
What is hashrate in crypto?
Think of hashrate as a measurement of how much energy computers (aka nodes) use to broadcast, verify, and publish crypto transactions. Hashrate is most significant on blockchains using the PoW consensus algorithm, which requires validator nodes to solve complex equations to post the next transaction block on the network’s payment ledger.
Also known as crypto mining, this PoW process rewards the node that successfully solves each mini-math puzzle with cryptocurrency. Each hash represents one cryptographic calculation from a node operator’s computer, and the hashrate measures the average number of these guesses on a crypto network every second.
How do hash functions work in crypto mining?
Cryptographic hash functions are long alphanumeric strings representing a digital file (aka input value), such as cryptocurrency transaction data. These hashes (aka output values) might look like gibberish, but they actually have fixed lengths with distinguishing characters for each input value and make perfect sense to computers on a blockchain system. The determinacy and reliability of hash functions make them an essential element when verifying crypto transaction data and securing the PoW mining process.
For example, Bitcoin uses a cryptographic hashing algorithm called SHA-256, which produces 256-bit hashes for each BTC transaction. Miners on Bitcoin’s blockchain constantly run input values on their mining equipment through the network’s hashing algorithm until one guesses an output value with multiple zeros in the opening phrase. Bitcoin’s blockchain regularly changes how many zeros it takes to claim the crypto rewards depending on current network activity. Since nodes have to "prove their work" to receive crypto rewards—and because it takes so much computational energy to hash a function with so many zeros—it’s almost impossible for bad actors to cheat the Bitcoin blockchain.
Why is hashrate important?
Measuring hashrate might not seem as significant for traders versus node operators or blockchain analytics firms, but it’s an essential metric to consider when reviewing PoW blockchains. A quick scan of a cryptocurrency’s hashrate chart gives viewers a clear glimpse into a blockchain’s history and the network’s current state.
Blockchain security
As a cryptocurrency’s hashrate rises, the more challenging it becomes for hackers to derail a blockchain’s operations. Since hashrate shows the total energy output on a PoW blockchain, it also reveals how much electricity crypto miners need to theoretically take over the network (aka a 51% attack). If the estimated cost to launch a 51% attack is greater than the potential cryptocurrency rewards, it naturally deters hackers from trying to bust into a blockchain.
Network decentralization
Hashrate data also shows the geographic distribution of crypto miners on a blockchain, ensuring there aren’t any potential manipulation points or security vulnerabilities. When hashrate mining is evenly spread among thousands of mining pools, it fosters a greater sense of legitimacy and resiliency.
Network fee estimation
When blockchains have higher hashrates, they often have more power to handle higher block confirmations, lowering average transaction fees even during high network activity. Conversely, if there’s a low hashrate on a blockchain with high demand, traders expect average transaction fees to rise as more users compete for limited block space.
Economic implications for miners
Node operators use hashrate estimates to plan their crypto mining operations and develop a strategy for profitability. After analyzing the hashrates for different cryptocurrencies, miners compare these rates with the average power on their mining rigs to estimate their potential earnings. Although higher hashrate capacities on rigs increase the odds of mining crypto rewards, miners must also factor in machine maintenance and electricity costs to get a complete picture of profits.
How to measure hash power
Analysts use different measurements to express a crypto asset’s hashrate, but hashrates always show the total hashes on the blockchain per second. The most straightforward hashrate size to understand is hash per second (H/s), but it’s unlikely to see this metric except on start-up blockchain projects with small communities.
As the number of miners on a blockchain increases, representing hash calculations in larger units of anywhere from thousands to quintillions becomes increasingly convenient.
Here are a few of the most common metrics:
- Kilo-hashes per second (KH/s): 1,000 hashes per second
- Mega-hashes per second (MH/s): 1 million hashes per second
- Giga-hashes per second (GH/s): 1 billion hashes per second
- Tera-hashes per second (TH/s): 1 trillion hashes per second
- Peta-hashes per second (PH/s): 1 quadrillion hashes per second
- Exa-hashes per second (EH/s): 1 quintillion hashes per second
Where to monitor crypto hashrate estimates
Hashrate is an essential metric for PoW blockchains, which is why many professional websites and companies constantly monitor this value (especially on significant networks like Bitcoin). For example, cryptocurrency analytics firms like Glassnode, LookIntoBitcoin, and Messari publish reports and real-time Bitcoin hashrate charts online.
In fact, a few crypto-specific search engines called blockchain explorers, like Blockchain.com, frequently post up-to-date info on crypto hashrate values. If crypto node operators join a PoW mining pool, they can usually access internal data on hashrate scores both for their pool and the network as a whole.
Also, search engines like Google can find historical charts and current data, especially for smaller PoW blockchains, by searching for the phrase “[cryptocurrency’s name] hashrate.”
Does hashrate influence a cryptocurrency’s price?
Hashrate profoundly impacts a blockchain’s security and efficiency, so some traders assume a crypto asset’s market price moves alongside its hashrate. There are instances when the value of cryptocurrencies like Bitcoin has a high correlation with hashrate, but there isn’t a simple 1:1 correlation between hash and price.
Sometimes, the hashrate and market prices for digital assets go in opposite directions. For example, data comparing Bitcoin’s hashrate and market price in 2018 showed a negative 66.2% correlation, meaning BTC’s price moved in the opposite direction of the network’s hashrate more than half the time. Also, when Bitcoin’s hashrate hit a record high of 465 EH/s in July 2023, it didn’t translate to a new all-time high in BTC’s market price.
The bottom line is that cryptocurrency prices and hashrates move in tandem sometimes, but there’s no evidence these factors have a direct relationship.
Power up your crypto knowledge on dYdX Academy
Looking for more info on crypto and blockchain technology? Check out dYdX Academy. With dozens of articles on all aspects of the crypto economy, dYdX Academy is the ultimate place for high-quality Web3 educational content. Also, don’t forget that dYdX offers a premier decentralized trading platform for eligible traders interested in perpetual swaps for digital assets like Bitcoin, Ethereum (ETH), and Cosmos (ATOM). Find out the latest details on trading with dYdX on our official blog, and eligible traders can start trading on dYdX today.
Disclosures
The content of this article (the “Article”) is provided for general informational purposes only. Reference to any specific strategy, technique, product, service, or entity does not constitute an endorsement or recommendation by dYdX Trading Inc., or any affiliate, agent, or representative thereof (“dYdX”). Use of strategies, techniques, products or services referenced in this Article may involve material risks, including the risk of financial losses arising from the volatility, operational loss, or nonconsensual liquidation of digital assets. The content of this Article does not constitute, and should not be considered, construed, or relied upon as, financial advice, legal advice, tax advice, investment advice, or advice of any other nature; and the content of this Article is not an offer, solicitation or call to action to make any investment, or purchase any crypto asset, of any kind. dYdX makes no representation, assurance or guarantee as to the accuracy, completeness, timeliness, suitability, or validity of any information in this Article or any third-party website that may be linked to it. You are solely responsible for conducting independent research, performing due diligence, and/or seeking advice from a professional advisor prior to taking any financial, tax, legal, or investment action.
You may only use the dYdX Services in compliance with the dYdX Terms of Use available here, including the geographic restrictions therein.
Any applicable sponsorship in connection with this Article will be disclosed, and any reference to a sponsor in this Article is for disclosure purposes, or informational in nature, and in any event is not a call to action to make an investment, acquire a service or product, or purchase crypto assets. This Article does not offer the purchase or sale of any financial instruments or related services.
By accessing this Article and taking any action in connection with the information contained in this Article, you agree that dYdX is not responsible, directly or indirectly, for any errors, omissions, or delays related to this Article, or any damage, injury, or loss incurred in connection with use of or reliance on the content of this Article, including any specific strategy, technique, product, service, or entity that may be referenced in the Article.