Despite the precipitous decline in it’s price, bitcoin’s hashrate (or the amount of computing power deployed to its network) has skyrocketed. Approximately a year ago, bitcoin had 6.018 exahash of computing power dedicated to its network. As of yesterday, bitcoin’s hashrate was equal to 38.42 exahashes. (1 hash in bitcoin is equal to one round of SHA-256, the cryptocurrency’s mining algorithm and 1 exahash is equal to 1018 hashes.)
Miners typically deploy computing power in the form of systems with specialized ASIC chips to compete with each other and earn rewards. The more systems used by a miner, the greater their chances of earning rewards and the bigger their profit. The jump in bitcoin’s hashrate started at the beginning of last year, when it had 2.28 exahash worth of computing power grinding out solutions to puzzles to earn bitcoin.
Hashrates are indirectly related to bitcoin price. Mining profitability depends on computing power deployed to the effort because economies of scale make it cheaper and easier to mine bitcoin. Greater hash power also makes the bitcoin network more efficient, thereby bringing more investors and daily users and driving up bitcoin’s real-world utility.
Why Did Bitcoin’s Hashrate Increase Last Year?
According to Coinjournal, the surge in bitcoin prices multiplied profits for bitcoin miners and made the activity more attractive. As a result, existing and new miners deployed new systems to maximize profits. “However, the inelastic nature of setting up and turning on new ASIC mining equipment tends to result in a delay between rising bitcoin prices and any resultant climb in hashrate,” the publication writes. In simple words, this means that a lag between the ordering and setup of mining equipment delays its effect on bitcoin prices. Bitmain, the world’s biggest manufacturer of ASIC mining equipment, makes its machines in batches. According to this thread, they was a significant backlog for the machines as far back as September of last year.
But that might be an inadequate explanation.
Bitcoin’s hash rate has consistently grown since the cryptocurrency’s inception. This growth encompasses periods of growth as well as slump. For example, the hash rate for bitcoin rose from 13.25 petahash in January 2014 to 57.07 petahash in April of the same year. During the same time, bitcoin’s price crashed by 43.6% in cryptocurrency markets. In fact, a paper by Coinshares earlier this year found that market-average marginal costs of creation are significantly lower than bitcoin price thereby, guaranteeing a profit for miners even in a low-priced environment. Prices for Antminers, the most popular ASIC mining machines, have declined after a bump last year in response to a surge in bitcoin’s prices.
Then there is the fact that it is difficult to arrive at a proper estimate of the hash rate. The big players in cryptocurrency mining are private players, who are not bound by law or practice to disclose the actual numbers and capacity of their operations. In its paper, Coinshares noted that the amount of mining gear available in the market is “an unknowable figure” and added that “we are still miles away from anything resembling the disclosure requirements of listed companies in modern developed economies.”
That said, media spotlight has made a difference to bitcoin’s fortunes in the last year. As publications documented its scandals and price movements, the original cryptocurrency attracted the interest of speculators and traders, leading to an increase in transaction activity on its network. The increased activity caused congestion and delayed confirmations. In that sense, the increase in bitcoin’s hash rate is good news for its network because it portends an increase in the horsepower necessary for future scaling of the cryptocurrency.