Crypto 101: What Are Hashrate And Difficulty?

Hashrate and Difficulty are two key concepts that underpin the security of Bitcoin and other proof-of-work cryptocurrencies. Understanding these two inter-related ideas is vital when learning how Bitcoin miners protect the network from attackers.

Understanding Hashrate

Hashrate refers to the computational power dedicated to mining Bitcoin or other PoW coins. Miners use specialized hardware called ASICs (Application-Specific Integrated Circuits) to carry out repetitive and computationally expensive operations known as hashes in order to validate and secure transactions on the network. Hashrate measures the number of these calculations per second performed by miners collectively. At the time of writing, this is around 370 million TH/s (terahashes per second), or 370 million trillion hashes per second.

A high hashrate signifies a large amount of computational power is devoted to mining, which leads to increased security and resistance against potential attacks. It ensures the network's integrity by making it prohibitively expensive for malicious actors to rewrite the blockchain's history. Consequently, a higher hashrate instills confidence in the immutability of Bitcoin transactions.

Difficulty

Bitcoin's Difficulty level is a value that is automatically adjusted every 2,016 blocks (approximately every two weeks) to maintain a consistent average block time of around 10 minutes.

Difficulty is a numerical value that determines how hard it is for miners to find a valid block hash, which allows them to write the next block of transactions to the blockchain and claim block rewards and transaction fees. As total network hashrate increases, Difficulty is adjusted upwards to maintain the desired block time. Conversely, a decrease in hashrate prompts a downward adjustment.

Bitcoin Difficulty and hashrate chart. — Difficulty broadly follows hashrate as regular adjustments occur.

This self-regulating mechanism ensures that blocks are not produced too quickly or too slowly, thereby maintaining the equilibrium of the network. The Difficulty adjustment allows the network to adapt to changes in mining participation, ensuring a stable issuance rate of new bitcoins.

Hashrate And Network Security

Hashrate plays a critical role in preserving the security of the Bitcoin network. A high hashrate acts as a deterrent against 51% attacks, where a malicious actor gains control of the majority of the network's mining power. An attacker needs to surpass the collective computational power of all honest miners, so higher overall network hashrate makes Bitcoin more secure.

Bitcoin's Hashrate and Difficulty have broader implications. When hashrate is low enough to mine profitably, which also depends on the price of bitcoin, more miners are attracted to join the network. As more miners join, hashrate and Difficulty increase, requiring miners to upgrade their equipment to stay competitive or else drop out. This creates a continuous cycle of technological advancement and investment in the mining industry.

Despite short-term fluctuations for various reasons (including price crashes, which can make mining uneconomical for older hardware), hashrate and Difficulty have consistently risen for all of Bitcoin's history.