The elimination of a centralized entity to sanction the release of new tokens and secure the network means that there must be a mechanism to perform these functions. Accordingly, Bitcoin’s founder Satoshi Nakamoto invented elaborate systems to remedy the situation.
Mining is one such aspect of cryptocurrencies. Bitcoin implemented a Proof-of-Work (PoW) consensus to secure the network and introduce new coins into circulation. PoW worked excellently in the early days of Bitcoin when usage and miner numbers were still pretty modest. But in due course, it started showing its inefficiencies, and newer popular blockchains like Cardano began to implement a Proof-of-Stake (PoS) consensus algorithm.
What is Hash Rate?
The reason why Bitcoin mining became unsustainable was its inherent adjustable difficulty linked to resource expenditure. Specialized computers using utilities like electricity have to expend resources solving an arbitrary mathematical puzzle in order for PoW mining to prevent someone from gaming the system. These mining algorithms are deliberately challenging. They have to be in order to secure the network.
Mining gear (distributed globally) competes to generate computer hashes which allow them the right to add the next block of transactions to the blockchain. The addition is random, and computers with high processing power, and the ability to generate more hashes per second, have a higher probability of generating the correct code. The winning miner gets to confirm Bitcoin transactions on this new block and earn transaction fees for the blocks they successfully mine.
The mining hash rate refers to the total computer power per second spent on mining cryptocurrency. Ilman Shazhaev, the Executive Chairman of OneBoost–a firm providing infrastructure for efficient cryptocurrency mining–defines hash rate as a factor influenced by hardware.
“The hashrate is the output of your mining hardware. In more comparative terms, the more hashrate you can produce, the higher earnings you will make. Also, you can view the network hashrate as a means of preserving fair competition. The network hashrate is the aggregate sum of all miners’ individual hash rates. Its level directly affects mining difficulty: the higher network hashrate causes a higher mining difficulty. By solving the mathematical puzzle of each hashing function, miners provide Proof of their work .”
While hash rate is synonymous with Bitcoin mining, many other legacy chains like Litecoin and Ethereum Classic rely more on unanimity over raw computing power, opting for Proof-of-Stake consensus, i.e. those seeking to confirm transactions on the blockchain need to stake a stipulated amount of coins to earn the right to validate transactions.
Hash rate in Proof-of-Work Mining
Bitcoin mining has become a massive global business, involving specialized computers that require high amounts of electricity. Unfortunately, some miners are utilizing electricity that comes from dirty sources like coal in the quest to mine as cheaply as possible. As Bitcoin prices rose after 2013, it encouraged more miners to join the network to earn block rewards and transaction fees. Not good news for the environment.
In contrast, PoS does not incentivize an arms race of computer equipment. It focuses on the acquiring and staking of network’s coin, which is more efficient. The Cardano blockchain took this approach for the above-stated reasons.
Measuring Hash Rate
As Bitcoin mining became big business, the need for tracking hash rate and difficulty became apparent. The hash rate is measured in units of hashes, like kilo for a thousand and mega for a million hashes per second.
The Bitcoin mining hash rate was approximately 163 EH/s as of early February. This mark is the equivalent of billions of hashes a second, representing the astronomical growth of the Bitcoin mining scene. More and more computers have been simultaneously crunching numbers to mine new blocks on the blockchain.
Machines with a higher hash rate can process more transactions per second. The latest Bitcoin mining rigs have hash rates of more than 100 TH/s, which is more than ten times where machines were five years ago.
Therefore, assuming new Bitcoins enter circulation, the hash rate will continue to climb. Systemic shocks like the Chinese government ban on Bitcoin mining negatively impacted the Bitcoin hash rate, but the general trajectory has been in one direction – up.
The mining hash rate has a direct impact on mining profitability. The higher the hash rate, the less profitable mining becomes.
The Hash Rate and Cryptocurrency Security
Decentralization is a core tenet of cryptocurrencies. When no individual or entity can control more than 50 percent of a blockchain, it takes on a semblance of decentralization. Blockchains often get classified according to how resistant they are to 51 percent attacks, which is when someone tries to seize control of the blockchain.
Accordingly, Bitcoin became more secure as its hash rate was distributed globally. PoS systems try to replicate this model by distributing node operators around the globe. When there is a more even distribution of transaction validators globally, there is less chance that a single government can frustrate a cryptocurrency’s operations.
The Chinese government’s ban on mining displayed the importance of miner distribution. There was an immediate drop in hash rate and mining difficulty. Nonetheless, miners in other jurisdictions seized the mantle and continued mining. After a few months, the hash rate went past previous record highs, which was pretty remarkable.
PoS blockchains like Cardano don’t require the same extensive mining infrastructure when compared to Bitcoin. This fact ensures that governments don’t have a cause to stop mining for energy reasons.
Proof-of-Stake is undoubtedly more efficient as a consensus algorithm. No matter how much money is poured into “greening” Bitcoin mining, it will never have the energy efficiency of PoS blockchains.
This sustainability question will continue to linger for Bitcoin mining.
Will Hash Rate Continue Increasing or Decreasing?
Analyzing future developments in mining hash rates is a delicate task. If Bitcoin continues to be a major crypto-asset with high value, miners will develop more advanced mining equipment with a resultant increase in hash rate. However, mining hash rate will probably one day become a smaller part of the crypto scene as PoS paradigms predominate in the marketplace.