There are plenty of terms and phrases that are tossed around when it comes to doing research on the fields of cryptocurrency and blockchain technology. Some of these include the likes of ‘smart contracts,’ ‘DApps,’ ‘EVM,’ and even ‘blockchain’ itself. Amongst these recurring terms are two that appear to be very similar, called ‘hash rate’ and ‘hash power.’
‘Hash’ is probably one of the more frequent terms that you will come across when you are reading more into both blockchain technology and cryptocurrency as a whole. It is an integral part of the system that maintains its stability and keeps the entire operation afloat, distributing currency to the users and working closely with miners to produce blocks. However, despite its popular usage in articles that center around the industry, it is quite common for some to not be fully versed in what ‘hash’ means and what its primary function is.
Admittedly, it took me quite some time to fully grasp what it meant as well. This is chiefly because of how many layers there are to how it works and its impact on the blockchain. As is with most other components of a larger system, ‘hash’ contains its fair share of intricacy that makes it the crucial factor that it is.
Along with this intricacy comes the distinctness of ‘hash rate’ and ‘hash power.’ What makes them separate? Are they completely different or do they share some similarities beyond their names?
If this inquiry is to be answered and wholly understood, then crypto terms other than ‘hash’ will have to be delved into because the complexity of it all cannot be condensed into just the definition of the core component of both of the aforementioned phrases.
Hashes, Nonce, and Difficulty
To properly understand the hash rate and hash power, we must first break down the basic parts of what makes up their titles.
‘Hash’ is the term that frequently pops up whenever the topic of blockchain technology is discussed. It is a function that converts an input of letters and numbers into an encoded product of a fixed length. It is commonly conceived with the use of an algorithm and is a significant component in blockchain management.
‘Hash rate’ is the speed at which a calculation is completing an operation in the Bitcoin code. The higher the hash rate is, the better it will be for mining because it increases the opportunity of uncovering the next block and receiving the reward.
To go more into detail, a hash rate is typically defined as being the speed that a given mining machine will operate at. Crypto mining involves discovering blocks through a series of complex calculations, with the blocks essentially being akin to mathematical puzzles. The mining machine will have to make between thousands and sometimes up to millions of estimations per second in order to find the correct answers to solve the block.
All in all, if a miner wishes to effectively mine a block, then they should hash the block’s header so that it is below or equal to the ‘target’. It should be noted that the target changes with every alteration made to the difficulty.
Before we move forward, let’s dig deeper into what exactly ‘difficulty’ is in relation to cryptocurrency because it is a term that will be brought up frequently in this article. ‘Difficulty’ is consistently defined by the industry as being a parameter that Bitcoin and several other cryptocurrencies use in order to keep the average time between the blocks as steady as possible whenever the hash power (more on this later) of the network changes.
So what purpose does difficulty ultimately serve in the grand scheme of things? Why bother setting a higher difficulty if the only realistic outcome is that the miners must repeat the same function over and over to solve a block? Well, the explanation for this can be found in the original Bitcoin whitepaper:
“To compensate for increasing hardware speed and varying interest in running nodes over time, the proof-of-work difficulty is determined by a moving average targeting an average number of blocks per hour. If they’re generated too fast, the difficulty increases.”
Bitcoin was designed in such a way that a new block is added to the blockchain every 10 minutes on average. The issue that stems from this is that the amount of computing power that the network’s miners control collectively can vary a great amount. When the first block was mined by Bitcoin creator, Satoshi Nakamoto, there was only one machine on the network; something like a laptop or a desktop. Nowadays, there are a wide variety of warehouse-sized machines that are built to go through hash functions as fast as possible.
Investopedia editor, Jake Frankenfield, writes that: “In order to ensure that the network produces a new block at a steady average rate, the software is set to automatically adjust the target hash up or down, which results in lower or higher difficulty, respectively. When Nakamoto mined the genesis block, bitcoin’s difficulty was 1.”
You can consult this chart to check the current Bitcoin difficulty.
With all this in mind, in order to reach a given hash (otherwise identified as the aforementioned ‘target’), the miner will have to modify some of the block’s headers, which is what is called a ‘nonce.’
Also known as “number only used once,” a nonce is a number that is added to a hashed block that meets the difficulty level restrictions when it is rehashed. Ultimately, this is the number that the miners of a blockchain are striving to solve for. Each nonce begins with 0 and is gradually increased every time as a means to get the necessary hash (or target).
The target is generally that the SHA-256 hash of a block’s header must be a 256-bit alphanumeric string and it must always start with a total of 18 zeroes. The target will change alongside the change in difficulty, which is every 2016 blocks.
Given the fact that the general varying of the nonce is trial and error and is basically a game of chance, the odds of getting a given hash are pretty low, thus the miner will have to conduct numerous tries by way of varying the nonce. The number of attempts that a miner will make per second is what is referred to as the ‘hash rate’ or the ‘hash power.’
So as you can clearly see, hash rate and hash power are fairly close in relation to each other and mean practically the same thing. Both essentially measure the speed of a calculation and keep track of the number of attempts that a miner will make. Evidently, this article isn’t so much comparing and contrasting the two terms, but rather is explaining their similarities and their comparable functions.
Measurements and the units
When it comes to measuring the rate and the units, a hash rate is calculated in hashes per second (h/s). Some of the more common phrases that are used in this case include mega, giga, and tera, with the exact one depending on the number of hashes. As an illustration, a machine that has a speed of 60 hashes per second will customarily make 60 guesses per second when actively trying to solve a block.
Kilohash (KH/s) is utilized for 1,000 hashes, megahash (MH/s) is used for 1,000 kilohashes, terahash (TH/s) is used for 1,000 megahashes, and petahash (PH/s) is employed for 1,000 terahashes. To go more into detail about this, the following are some of the denominations that are used to refer to the hash rate:
- 1 KH/s = 1,000 (one thousand) hashes per second
- 1 MH/s = 1,000,000 (one million) hashes per second
- 1 GH/s = 1,000,000,000 (one billion) hashes per second
- 1 TH/s = 1,000,000,000,000 (one trillion) hashes per second
- 1 PH/s = 1,000,000,000,000,000 (one quadrillion) hashes per second
- 1 EH/s = 1,000,000,000,000,000,000 (one quintillion) hashes per second
These are a few of the more common hash rate conversions:
- 1 MH/s = 1,000 kH/s
- 1 GH/s = 1,000 MH/s = 1,000,000 kH/s
- 1 TH/s = 1,000 GH/s = 1,000,000 MH/s = 1,000,000,000 kH/s
The variety of machines that are used as a means to mine for different cryptocurrencies do not consist of equal hashes. To elaborate on this point, let’s say for instance that a machine that is mining for Bitcoin has a much different hash rate from that of another digital currency like Ethereum. This can easily be defined by the unique type of algorithms that are used by the cryptocurrencies as they do not utilize the same amount of memory and computing that is needed to be mined.
The important trio
There is a distinct relationship that exists between the hash rate, the miner’s profits, and the difficulty, due largely in part to the fact that they are interdependent on each other in a number of ways. To better explain this, we will use Bitcoin as an example.
Whenever there is a time where the difficulty of the Bitcoin network increases, the hash rate concurrently increases and consequently, the miner will earn 12.5 BTC and the transaction fees. The total number of miners within the Bitcoin network escalates the difficulty, due to a miner needing to calculate more estimations per second.
This particular correlation between these three groups are essentially forced into Bitcoin so that the average Bitcoin block time can – as it has been previously stated – remain at the standard time of 10 minutes.
Electricity & Profitability
There is an impact that electricity has had on profitability. Once again, to look further into this, let’s take Bitcoin into consideration. At this point in time, a Bitcoin mining device such as an ASIC (Application-specific Integrated Circuit) possesses a mining power of roughly 12 terahashes per second. After taking the difficulty into account, the machine can produce 0.318 BTC on average per year.
With that being said, when it comes to calculating the profitability, you will need to consider the electricity costs that are linked to the mining equipment. Aaron Hankin wrote an article for MarketWatch in May of 2018, which touched upon this subject:
“In search of cost savings, cryptocurrency miners traverse the globe to take advantage of cheaper energy. Those virtual miners perform a crucial function within the blockchain, or the decentralized ledger technology that underpins most cryptocurrencies, by solving complex problems to validate transactions on the network, In exchange for this function, which powers miners are rewarded with bitcoins.
However, because bitcoin’s protocol operates on a proof-of-work basis—meaning it requires an expenditure of computing power—both the power and difficulty of problems increase as miners approach the maximum number of bitcoin’s meant to exist at 21 million. Currently, there are about 16.9 million bitcoins in existence.
The mainstream attention around bitcoin as it hit a peak level at $20,000 last December has led to an outcropping of digital miners and mining operations.”
Moreover, according to research that was conducted by Elite Fixtures, the cost of mining for a single bitcoin varies significantly depending on where in the world you are currently residing in. This ranges from as little as $531 to an astonishing $26,170.
“The Elite Fixtures report looked at the costs to mine a single bitcoin BTCUSD, +0.07% in 115 different countries based on average electricity rates according to local government data, utility company reports, and/or information from the Paris, France-based International Energy Agency, the U.S. Energy Information Administration and currency-data company Oanda.”
The tactic of searching for cheaper energy is what is referred to as the efficiency of the miner.
An increase in the overall difficulty of mining a cryptocurrency of any kind also increases the cost of electricity. For example, a mining machine that possesses a 10% higher hash rate than another machine, but additionally has a 50% higher cost in electricity is both extremely wasteful and much less profitable. With that in mind, although the hash rate is a vital factor to keep in mind when you are mining, it is equally as important to remember that efficiency is something that should also be taken into consideration.
Something else that is important to note is that the future profitability of mining cannot be reliably predicted. This is mostly because of the changing Bitcoin price and it is due to the ever-changing nature of the Difficulty modifier and, in particular, the BTC price.
If the length of this article is anything to go by, what was stated in the introduction is true: ‘hash’ is a complex topic. On top of that, the titular dueling terms are equally as intricate as the word they derive from. Be that as it may, it has become apparent that hash power and hash rate are not as different as they appear to be on the surface.
It is fallacious to assume that these terms play a comparatively small role in the overall system that is cryptocurrency. After doing some research, it becomes clear how important the hash is to the distribution and the maintenance of the operation.