Hash Rate: What Is It and Why Does It Matter?
Cryptocurrency is no longer something for the media and traditional finance people to ignore. Miners solve convoluted mathematical problems to put them into the blockchain, and when this occurs, a hash is generated. Consequently, Jesse Abernathy of Phoenix explains that the hash rate measures the network’s health and security.
From the definition to the relationship with price, explore the ins and outs of the elusive hash rate below.
What Is Hash Rate?
Hash rate is the measure of computational power used by a cryptocurrency network to process a blockchain’s transactions (the number of calculations performed per second). Additionally, it shows the speed at which a miner’s machines complete the calculations.
When crypto mining, the goal is to be the first to administer transaction data that meets all the validation criteria and holds the correct answer. Other miners must validate the hashes by determining whether sufficient computational power was used in its production. Once validated, it’s added to the chain, and the miner receives newly minted crypto coins.
Essentially, the more computers working to guess the next hash, the more secure the network. Therefore, higher hash rates reduce network vulnerability.
Hash Rate and Cryptocurrency Miners: The Importance
Defining hash rate is relatively simple, but those on the outskirts of the crypto mining community struggle to see the value of the measurement. At first glance, it appears to be nothing more than an interesting metric. But, as well-established miners understand, it runs much deeper.
It all comes down to profitability. Cryptocurrency miners are constantly competing with others to be the first to compute the next valid hash. Thus, they want their machines to perform calculations as fast as possible.
By looking at the hash rate, they quickly determine whether they’ll win the race. If they’re using equipment with slower hash rates than others, they won’t “win” as often. Plus, mining on a network with a high hash rate indicates a large number of others competing for the same outcome. Both situations reduce the likelihood of turning a handsome profit.
Hash Rate and Investors: The Importance
Interestingly, the hash rate isn’t just a metric for miners. Investors glean valuable information from understanding the measure.
According to the co-founder of Cyberdyne Tech Exchange, Gabriel Wong, hash rates are impacted by cryptocurrency prices.
Taking Bitcoin as an example, when prices are high, the hash rate skyrockets because more miners join the network. But, as the price decreases, the margin and hash rate shrink.
With that said, some experts disagree with Wong’s statement.
The Discrepancies Between Hash Rate and Price
As per the ever-updating Bitcoin Network Hash Rate VS Price chart, there’s almost no correlation between price and hash. Therefore, using the hash rate to predict the price isn’t the smartest move. But it can be beneficial to use the price to accurately forecast the hash rate, as per Gabriel Wong’s analysis.
The Bottom Line
Computational technology is advancing like never before, making mining less expensive and more efficient. But 2024 is set to see a 50% Bitcoin mining reward cut, which may decrease profitability. How will the change impact the hash rate? Miners and investors alike must wait and see.
