On a simple level, hashrate is the way we measure how much computing power everyone around the world is contributing toward mining Bitcoin. Miners use their computer processing power to secure the network, record all of the Bitcoin transactions and get rewarded in bitcoin for their efforts.
The higher the hashrate of one individual Bitcoin mining machine, the more bitcoin that machine will mine. The higher the hashrate of the entire Bitcoin network, the more machines there are in total and the more difficult it is to mine Bitcoin.
Another way of looking at it, is that hashrate is a measure of how healthy the Bitcoin network is.
It’s good for Bitcoin if the overall hashrate is high, because it makes the network more secure. Somebody who wanted to attack Bitcoin would need at least 51% of all the hashrate in the world and that gets pretty expensive when there are millions of mining machines running.
It’s also healthy if those machines are being operated in different countries by different people, because it means it would be very hard for the entire network to be shut down. Bitcoin is like a many headed hydra, at this point in time it is more or less unstoppable.
Before we get too deep into the Bitcoin Mining topic, please note that mining isn’t the fastest way to get bitcoin. Buying bitcoin with a debit card is fast and efficient.
Underneath the hood, Bitcoin mining is a bit like playing the lottery. Roughly every 10 minutes the Bitcoin code creates a ‘target’ number that the mining machines try to guess.
Typically we call this finding the next block. Like many things connected to Bitcoin this is an analogy to help things be a little bit easier to understand. The deeper you go into the Bitcoin topic, the more you realise there is to learn.
Whichever machine guesses the target number first earns the mining reward, which is currently 6.25 BTC. They also earn the transaction fees that people spent sending bitcoin to each other.
Just like winning the lottery, the chances of picking the right hash is extremely low. However, modern bitcoin mining machines have a big advantage over a person playing the lottery. The machines can make an awful lot of guesses. Trillions per second. Each guess is a hash, and the amount of guesses the machine can make is its hashrate.
No. Other cryptocurrencies, like Ethereum, that use mining to support and secure their networks can be measured in hashrate. However, different coins have different mining algorithms which means that the chance of a mining machine guessing the target, writing the block onto the blockchain and getting the reward is different from one cryptocurrency to the next.
We can still compare the amount of hashrate between two different cryptocurrencies, and the Bitcoin network has a lot more computing power than all the other currencies put together. This is why it’s pretty easy to argue that Bitcoin is the most stable and secure, and why it’s very unlikely that a new coin will take over its crown.
Bitcoin is king, long live Bitcoin.
The algorithm that Satoshi Nakamoto implemented for Bitcoin is called SHA-256. So when we talk about the hashrate of the Bitcoin network, or a single Bitcoin mining machine, then we are really talking about how many times the SHA-256 algorithm can be performed. The most common way to define that is how many hashes per second.
You’ll see it listed as H/s or more commonly TH/s, which is one trillion hashes per second!
When Satoshi gave the world Bitcoin back in 2009, it was easy enough to measure hashrate in hashes per second because the computing power on the Bitcoin network was still relatively low. You could mine Bitcoin on your home computer and it was quite possible and likely that you would occasionally earn the then 50 BTC block reward every so often.
Today the block reward is only 6.25 BTC and hashrate is measured in trillions, quadrillions and even quintillions of hashes per second.
Here’s a list of the standard units for hashrate:
|Kilohash||KH/s (thousands of Hashes/second)|
|Megahash||MH/s (millions of Hashes/second)|
|Gigahash||GH/s (billions of Hashes/second)|
|Terahash||TH/s (trillions of Hashes/second)|
|Petahash||PH/s (quadrillions of Hashes/second)|
It is surprisingly tricky to work out the exact hashrate of the Bitcoin network because the mining machines don’t need to identify themselves in order to contribute their computing power to the network. The machines are simply hashing away locally and then communicating to the network (usually via a pool when they have found the latest block.
It's hard to accurately measure the hashrate of all machines in the network. Hashrate charts are reverse engineered by comparing block frequency and network difficulty.
The oscillations exist because difficulty is constant in two weeks but block frequency varies greatly. At F2Pool, we find that estimated Network Hashrate is best represented as a moving average.
For a refresher on what difficulty is in the Bitcoin blockchain, read our explainer on difficulty or take a brief look at the video below:
The daily estimation of hashrate is calculated by comparing the number of blocks that were actually discovered in the past twenty four hours with the number of blocks (144) that we would expect would be discovered if the speed stayed constant at one block every ten minutes.
The formula looks like this:
It’s a little bit more complicated than just dividing the amount of blocks, because it includes the concept of mining difficulty. Bitcoin is programmed to mine a block about every 10 minutes. It maintains this rate of production by adjusting the “mining difficulty” in line with the overall hashrate of the network. In short, it becomes more difficult for miners to find the target. As hashrate increases, so does Bitcoin’s mining difficulty.
The main point is that the answer that this formula produces is not entirely accurate, and can lead to hashrate charts that look a little strange if they aren’t averaged out. The Tweet below is a good example of the kind of confusion hashrate data can create when it is not presented as a moving average.
Look at this Bitcoin chart. Why is the BTC hash rate oscillating so much? The amplitude seems to have increased in recent months, does that imply hash rate centralization? Or are #Bitcoin PoW pools gaming the difficulty calculation? (to collect more rewards?) pic.twitter.com/pgFmgLXtcZ— NΦAH (@NoahPierau) March 18, 2020
The chart below shows Bitcoin Hashrate as a three day moving average vs the price of Bitcoin itself, without the wild oscillations.
To put it bluntly, the more hashrate you have, the more you’re going to earn from Bitcoin mining. That’s because you are increasing your chances of getting rewarded for discovering a block with every TH/s you add in terms of computing power.
In 2020, modern machines produce between 60 and 100 TH/s. The Whatsminer M20S produces 68 TH/s. Compared to the entire Bitcoin network that one machine is a drop in the ocean. There are millions of machines, in multiple countries hashing away trying to discover the next block.
This means that over time, as can be seen in the following chart, the revenue for 1 TH/s has fallen dramatically.
In June 2020, 1 TH/s will earn less than 10 cents in USD per day. So one M20S will earn around $6, and that’s before you have paid your electricity bill. Mining is a margins game, where every cent counts.
If you’ve been paying attention you might be asking yourself one more question. If one M20S runs at 68 TH/s, and the entire Bitcoin network is above 100 EH/s what on earth are the chances of one individual machine mining a block.
The chances are astronomically low…
If you ran an M20S on its own then probabilistically you would earn a single block every 16 years. It would be a pretty good pay day (around $60,000 at today’s prices) from a machine that costs about $1000, but it’s a long time to wait, and that’s where mining pools come in.
Another aspect of the mining business that affects revenue is taxes. Every miner needs to know the relevant tax laws for Bitcoin mining in his part of the world, which is why it is so important to use a crypto tax software when calculating profits.
As the hashrate on the Bitcoin network increases, the chances of earning a reward through solo mining decreases. To increase their chances of earning mining revenue, miners connect to a mining pool to pool their computing power and proportionately share the block rewards of any block mined by the pool based on the amount of hashrate they contributed.
I promise you, this is the last bit of math…
A PPS+ pool, like F2Pool, takes the variance risk away from miners, as the pool will pay out mining revenue to miners regardless of whether the pool successfully mines a block. Usually, PPS+ pools pay out once per day.
If the Bitcoin Network Hashrate is at 100 EH/s (100,000,000 TH/s), a WhatsMiner M20S ASIC miner with 68 TH/s, earns around 0.001224 BTC per day. It’s guaranteed by the pool regardless of luck.
When Satoshi created Bitcoin and gave it to the world, he took the idea of hashrate and used it to ensure that Bitcoin would remain decentralized and secure. Miners compete with each other to earn rewards and the computer power they contribute to the network makes it very hard for a bad actor to mess around with people’s transactions.
To attack Bitcoin you need at least 51% of all the hashrate in the world, now that the miners produce 100 quintillion hashes per second that’s becoming a very expensive and unlikely scenario. In short, the more hashing power used to mine Bitcoins, the harder it is for a single person to get 51% of it.