If you’re new to cryptocurrency, you may have heard the term “hash rate” but have no idea what it means.
Do you have any idea how Bitcoin mining works? You might know that it is the process of adding new transactions to the blockchain, but do you understand what is really going on? Bitcoin mining is an intriguing process that many people have questions about.
If you are considering starting to mine Bitcoin, it’s important to know what hash rate means and how it works in the process of mining. It’s a significant factor for mining cryptocurrencies, like Bitcoin and Ethereum. This article will answer all your questions, so you can make a well-informed decision.
What is hash rate? Why does it matter?
The hash rate is important for buyers and sellers of cryptocurrency as it determines the value and difficulty of mining Bitcoin.
Your device’s hash rate is the speed at which your computer can solve crypto mining puzzles. It is a measure of how quickly a miner can solve complicated mathematical problems and authenticate transactions in order to create a 64-digit hexadecimal number known as a “hash”. It is an indispensable factor for cryptocurrencies that use the proof-of-work (PoW) consensus process. The more powerful your computer, the higher your hash rate will be.
Your mining rig’s hash rate can be affected by the software (like Bitcoin Core) and hardware being used, like central processing units (CPU), graphics processing unit (GPU), field-programmable gate arrays (FPGA) or application-specific integrated circuit (ASIC) miners. When calculating your hash rate (which an online hash rate calculator will help), bear in mind that you should compare the hash rates regularly to see if there has been any increase or decline, which might be caused by the degradation of the device.
Hash rate is usually measured in hashes per second and is denoted by MH/s (mega or million hashes per second), TH/s (tera or trillion hashes per second), PH/s (peta or quadrillion hashes per second), or even EH/s (exa or quintillion hashes per second). A higher hash rate is beneficial because it tends to increase the miner’s chances of uncovering the next block and earning a Bitcoin reward. So if you want to mine Bitcoins, make sure your mining rig has enough horsepower!
Mining Pools
Mining pools refer to a group of miners who work together to find new blocks and share the rewards equally. Currently, there are three different types of mining pools. They work in slightly different ways but share some common features.
Before joining, it is critical to understand the different types of mining pools in order to forecast your profit from mining Bitcoin. Here is a brief explanation of these:
Solo mining pool
Solo miners submit their solutions to the crypto network alone and share the rewards if they are the first to find a new block. This can be risky because you are competing against all the other miners on the network, but it can also be rewarding if your hash rate is high enough.
Traditional pool
In this scenario, miners work together to find new blocks and the rewards are shared equally among all members after any fees have been deducted. Each miner’s share will differ depending on their hash rate and the amount of computing power they bring to the group.
Private pool
In a private mining pool, all the members contribute their hash rate to mine coins for someone else. The rewards from this type of arrangement are distributed by how much each miner has contributed to solving blocks rather than being shared equally among miners in the group.
So is it more difficult to mine Bitcoin now?
The supply of Bitcoin is limited, and the reward only goes to the miner that provides the most amount of “work”. Hence, miners are fighting for a limited number of block rewards. The hash rate of a crypto network is proportionate to the total number of miners and total processing power. Thus, any rise in the number of miners will raise the hash rate of the crypto network and thus the difficulty to mine it.
Further, in the case of Bitcoin, the difficulty for miners to guess the right hash will be automatically adjusted every two weeks based on the current network hash rate to control the supply. In general, a higher network hash rate will be followed by a rise in crypto prices, yet it is uncertain which is the cause, and which is the effect.
Since the inception of Bitcoin, an increasing number of miners have entered the game, driving up the hash rate. The most likely explanation for additional new miners entering the very competitive field is Bitcoin’s extremely high price volatility. Some may see such characteristics of crypto as risky, but others might deem it as an opportunity to make big bucks. On November 10, 2021, the price of Bitcoin, the world’s first and most popular cryptocurrency, rose to an all-time high of more than US$68,000. At the beginning of 2021, it was only at about US$23,000. As of writing, the price of Bitcoin was at US$51,134.
If you want to dip your toes in the pool of crypto mining—do some more research on what kind of mining hardware and software will work best for your needs!
Happy mining!
Header image courtesy of Pixabay
