Hashrate

The concept of hashrate

All cryptocurrencies use the blockchain principle (a continuous chain of blocks – hence the name), according to which each subsequent block stores information about the previous one. It is this approach that provides networks with stability and security due to the impossibility of interference in the chain from the outside.

Each block is a piece of information packaged in a certain way, for example, about a transaction on the network. The most important part is the unique title. It strictly complies with the rules established on the network and allows you to uniquely identify a block, that is, enter information into the database and then, if necessary, retrieve it.

The header is generated by solving a complex cryptographic problem, during which a given amount of information is converted into a unique set of characters of a given length. This transformation is called hashing, and the resulting set of characters is called a hash. Each cryptocurrency network uses a specific hashing algorithm, which determines the rules for calculating the hash.

It also specifies the acceptable block header format. For example, for the Bitcoin network it might look like this:

0000000000000000002037646f063ea032548c4906a6a2b6e16d7ee90c8ba9bc

To find a header that matches the conditions specified on the network, you need to perform a certain (quite large) number of hashing operations. This is exactly what users’ equipment does when mining cryptocurrencies. The number of such operations per unit of time may vary. This is what is called speed, often hardware performance or hashrate.

Hashrate also has another meaning, which is used as a characteristic of the network as a whole. This indicator reflects the total number of hash calculations per second performed by all equipment included in the network.
How is hashrate measured?

So, hashrate is the number of hashing operations or hash calculations performed by equipment per unit of time. The reference unit of time is 1 second, that is, the hashrate is measured in hashes per second (h/s, H/s). Since the performance of modern equipment is high, and the blockchain networks of almost all cryptocurrencies include millions of pieces of equipment, they often operate in multiples of units:

That is, when they talk about kH/s, kilohashes per second (they practically don’t talk about them anymore, since equipment performance has left such numbers far behind), they mean that several thousand hash calculations are performed per second. 2 EH/s means two quintillion (2 followed by 18 zeros) hashes are calculated per second. For example, as of August 20, 2023, the current hashrate of the Bitcoin network was 473.4 EH/s. This figure clearly illustrates what kind of computing power is involved in the extraction of the first cryptocurrency.

Hashrate value for blockchain networks

Hashrate shows how many hashing operations the equipment (whether an individual miner or the network as a whole) performs per unit of time. It is logical to assume that the larger this value, the shorter the time it takes to calculate the correct header (finding a block) in the blockchain network.

From a miner’s point of view, an increase in hashrate is equivalent to an increase in profitability. Indeed, the more often the user’s equipment finds the correct (valid) block, the more often its owner receives a reward. On the Bitcoin network it is currently 6.25 coins per block. After the next halving (halving), which will occur approximately in April 2024, it will decrease to 3.125 coins.

Since the frequency of receiving rewards is directly related to hardware performance (hashrate), miners strive to increase it using various methods. Of course, you can buy tons of equipment and earn a decent income. However, there are several obstacles along this path:

Mining equipment is expensive, so increasing your own capacity is not so easy.
The networks have grown so large, and their hashrate is so high, that an individual user is unlikely to be able to assemble a mining rig with such productivity to obtain an acceptable (which is not calculated in years) probability of finding a block.
If each user increases the computing power of their equipment, the hashrate of the entire network will increase accordingly, which will practically not change the situation for an individual miner.
A good option is to increase performance without changing the network hashrate. This is exactly what miners do when they join together in pools. The total computing power of such a union allows valid blocks to be generated quite often. In this case, the reward is divided between the participants, bringing them income that they do not need to wait for years.

Hashrate and network complexity

Reducing the time it takes to mine a block and pay out rewards is not an absolute advantage from the network’s point of view. On the contrary, in the Bitcoin network, for example, the mining time for the next block is approximately the same – about 10 minutes. To implement such a limitation, some kind of counterbalance to the growth of hashrate is required. This counterbalance was the growing complexity of the network.

Network complexity is usually called the average number of hashing operations required to obtain the next valid block. If this indicator grows at the same rate as the hashrate, the speed of finding a block will remain unchanged. This principle is used in all cryptocurrency networks.

Difficulty adjustment is carried out by changing the type of valid block. In the Bitcoin network, the type of header for which is shown above, the difficulty is changed by adjusting the number of leading zeros in it.

On a note! The complexity of the network is determined not by hashrate measurements, but by the time spent generating a certain number of previous blocks. So, in the Bitcoin network this number is 2016. That is, recalculation is carried out every 2016 blocks, and the difficulty is set so that it takes about two weeks to find the next 2016.

Thus, for a miner, hashrate turns out to be the main indicator. Using it, he selects equipment that will bring (taking into account electricity costs and commissions) the desired profitability. At the same time, the performance of the equipment is its hashrate, and when choosing, its relationship with the overall hashrate of the network and its complexity is taken into account.