What does it mean and why does it matter what the Bitcoin hash rate is? For most of you, to simply say that the Bitcoin hash rate hit a new all-time high (ATHs) at over 119 Exa hashes per second (EH/s), which is equivalent to 1230 zettaFLOPS per second, you might be glassy-eyed and reject Bitcoin for being “too complicated”. So let’s put it to you simply: Each completed hash means that an intentionally n-difficult mathematical puzzle has been solved. The hash rate, measures how many times the network attempts to complete the puzzle every second.
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At the moment, the hash rate is now 119,354,000 Th/s; an 8x increase since 2017. The prices have also increased with the start of the 2020 new year with increased anticipation over the mining reward halving in May 2020.
Again, you might be asking, “Why does this matter?”
The hash rate suggests there are many more miners trying to validate blocks before the mining difficulty is increased and the increased difficulty will ensure that block times remain consistent at around 10 minutes per block.
So what does this mean for the Bitcoin Network?
When Bitcoin’s mining difficulty level increased after the last halving, many of the small miners were forced to shut down, and only the large mining operations were able to remain profitable. It was almost an existential crisis as recently as last April, especially after China declared mining operations “undesirable” before shutting down two thirds of their operations in the country.
Regardless of how much miners work on the network, the difficulty adjusts to ensure block times remain consistently around 10-minutes. Crypto winter makes mining tougher, however, as the bear market faded away and gave way to the bulls, more than half a million new application-specific integrated circuit (ASIC) rigs came online in Q3 2019. Bitcoin price almost doubled in 2019 and most traders recovered over 50% of their losses
Since the new year, the price has increased over 10% and the rise may be the bull run that comes before every halving and the bullish trend has already set in the charts, encouraging miners to mine the last few blocks before the halving. 2020 is crucial for the Bitcoin Network because miners have an opportunity to increase their mining capacity before the halving and would have enough to cover operating costs after the halving. The block reward will drop to 6.25 BTC after the halving. Mining rings and cloud mining operations may all make significant job cuts while they are anticipating a drop in their revenues. In fact, there may be a major sell-off or dump right before the halving as these companies may cut losses.
Why is hash rate important?
As mentioned earlier, the hash rate is how quickly the network solves a very difficult mathematical puzzle. Analysts also look at the hash rate as an indication of general sentiment around Bitcoin’s price. You see, as Bitcoin is mined, blocks of verified transactions have to be “hashed” before adding it to the growing chain of blocks.
It is also an indicator of the network’s health. A higher hash rate ensures that the network is more efficient and secure from 51% attacks. The higher the hash power of the network, the greater the number of miners that would be needed to commit a 51% attack. In essence, the difficulty of creating a coordinated number of computers that are required for such an attack increases significantly. That all being said, it does not stop large entities who control a majority of the hash power of the network from trying.
Ownership of a large percentage of the hash power is an increasing concern and research from October 2018 suggests that over 80% of Bitcoin mining was conducted by six groups of miners, five of which are directly managed by individuals or companies from China. What does this tell you? Theoretically, China has substantial power over the Bitcoin Network, which should concern everyone.
What’s next for Bitcoin?
Hash rates may increase as we get closer to the halving, which may be followed by a massive sell-off after the halving. Price may drop below 50% of the current level and two-thirds of miners may shut down their operations to curtail losses. Currently, prices are rising and there is hope that we are exiting another long Crypto Winter. That being said, cautious traders might take the time to recoup their losses from 2017 and exit before the halving sell-off predictions.
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