Glassnode Series: Understanding The Bitcoin Hashrate
12 May 2021
The Bitcoin hash rate is relatively simple to understand but not actively studied by everyday retail traders. However, the hashrate is considered a crucial metric to gauge the strength of the network. So first we must begin with the question - what is the Bitcoin hash rate?
What is the Bitcoin hash rate?
In simple terms, the Bitcoin hash rate is the amount of computing power being used to ensure that the Bitcoin network is secure. Bitcoin uses a PoW (Proof of Work) consensus algorithm. This algorithm requires computers to spend their computational power to verify blocks to support the Bitcoin network. For their work, the miners are rewarded in Bitcoin. Generally, the higher the Bitcoin hash rate, the more secure Bitcoins network is.
Bitcoin hash rate from 01/01/15 - 01/01/16
Do all cryptocurrencies have a hash rate?
Only PoW cryptocurrencies have a hash rate. This is because cryptocurrencies which utilise other consensus algorithms such as PoS (Proof of Stake) and BFT (Byzantine Fault Tolerance) are not mined or mined in a different manner. These consensus algorithms use other methods in order to ensure security across the network.
For example, with a PoS system miners attribute mining power from the amount of coins which they are staking on the network. One popular cryptocurrency which utilises PoS is Cardano (ADA).
ADA/USD - interest in PoS cryptocurrencies has increased substantially in 2021, especially ADA
Why is the Bitcoin hash rate important?
The Bitcoin hash rate is important because it shows how resilient Bitcoin is against a potential attack. If the hash rate is high, the resilience of Bitcoin is higher. Although if the hash rate is lower, the resilience of the Bitcoin network is lower. The resilience of the Bitcoin network is currently not viewed as an issue, with Bitcoin's network being the most secure network ever to exist.
How is the Bitcoin hash rate measured?
The Bitcoin hash rate is measured in TH/s. TH/s stands for the total hash rate per second. With these hashes themselves measured in terahashes. For example in the chart below we can see that when BTC hit its 2021 Q2 high of $64,000 USD, the hash rate was 197,890,893,438,966,000,000/s.
BTC/USD hash rate Q2 2021
BTC hash rate over time
In the table below you can see the end of year hash rate for BTC between the decade of 2010 - 2020. Each year BTC has seen its hash rate increase compared to the previous year. The increase is despite negative price action in years such as:
- 2014 - BTC fell from $735 to $314 USD
- 2018 - BTC fell from $14,000 to $3,500 USD
|Year||End of Year Hash Rate (/s)||Increase or decrease from previous year?|
BTC hash rate increase visualised 2010 - 2020
Why the BTC hash rate has increased since 2010?
There are three main reasons why BTC has seen its hash rate increase substantially since 2010.
Reason one - increased interest in Bitcoin
The first reason is the most obvious one. Since 2010 the interest in Bitcoin has increased beyond what could be generally comprehended in 2010. This increase in interest is best seen through the increase in Bitcoin addresses with a balance of over $1 USD.
At the end of 2010, the number of Bitcoin addresses with a balance of over $1 USD was at 112,894. Fast forward to the start of 2020, there are now 20,497,559 Bitcoin addresses x>1USD. This is a 181 times increase in those addresses!
In the chart below you can see the increase of Bitcoin addresses between 2010 to 2020.
BTC/USD - number of addresses with over $1USD since 2010
Naturally as people discover Bitcoin, they are interested in different things to do with the cryptocurrency. Some who discover Bitcoin are interested in trading, HODLing and others are interested in mining Bitcoin.
Therefore the increased interest and usage of Bitcoin has led to an increase in the hash rate, with a direct positive correlation seen.
Reason two - Moore's law
Moore's law is the observation from Gordon Moore (Intel founder) that every two years the number of transistors in a circuit will double. This will see a positive effect on things such as processing speed for computers.
In plain english - on average, computing power doubles every two years.
Computers are required for Bitcoin mining because it is a PoW system (as mentioned earlier). Therefore, if the computing power doubles every year, the hash rate should also see a positive increase (providing that the number of miners does not fall). We can see that there is a positive direct correlation with Moore's Law when comparing the chart below and the BTC hash rate increase since 2010.
Moore's Law - Chart by Eric Martin
Reason three - specific Bitcoin miners
The third and final reason is the creation of hardware specifically for Bitcoin mining. Bitcoin was originally intended to be mined across the world by users from their computers at home. However, instead we have seen Bitcoin mining drive the development of mining hardware.
Regular computers cannot compete. In the picture below, you can see an example of a computer designed for BTC mining - the Antminer S19.
Bitmain Antminer S19
These computers have a significantly higher hash rate than regular computers, additionally they are improving year on year, as shown below.
|Bitcoin Mining Computer||Year created||Hash rate (TH/s)|
|Antminer S19 pro||May 2020||110|
|Antminer S19||May 2020||84|
|Antminer S9 (14Th)||Feb 2017||14|
|Antminer S9 (11.5Th)||June 2016||11.5|
|Antminer S7||September 2015||4.73|
|Antminer S5||December 2014||1.155|
|Antminer S3||July 2014||0.478|
The continuous improvement of specific BTC mining computers, as shown with the Antminers above, has been one of the major contributions to the increasing BTC hash rate.
Bitcoin Hash Rate conclusion
In conclusion, the BTC hash rate is an important metric which displays the security of the Bitcoin network. It displays why Bitcoin is considered to be the most secure currency / payments system ever created.
Understanding what the BTC hash rate is can be important. Additionally, understanding why the Bitcoin hash rate is increasing should bring long term HOLDers comfort in knowing that the Bitcoin network is getting stronger and safer year on year.
If you want to learn more about mining and how miners secure the network, these articles may be useful:
- Assets in Mathematics: The Bitcoin Mining Industry
- Dimensions 101: On Mining, Hashrates, and the Bitcoin Price
And if you're thinking about mining yourself:
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