By Nathan Ferguson
Technological advancements have fascinated mankind. These inventions have made such things possible which seemed impossible a few centuries back. The biggest milestone in the technological revolution was the invention of the steam engine. The invention of the steam engine spurred an unprecedented pace of inventions that later on shaped the history of mankind.
Moreover, the next milestone was the invention of the assembly line. This was a revolutionary idea that laid the basis of consumerism and hence modern capitalism. As a result of modern production methods, consumption increased and the concept of mass production was introduced. The huge supply and demand meant that there would be global-level transactions of money. This in turn paved the way for the modern financial system.
The modern financial system revolved around the idea of banks. The banking industry became the backbone of the financial system. At the start, the banking industry was based on paper notes called paper currencies. Later on, paper currency evolved into plastic currency. However, the banks remain in control of the financial reins of the world.
This resulted in the economic crisis of 2008. After this point, the world realized that it needed a new form of transaction, one that is free from the shackles of international banking systems and all third-party intrusion. That’s where the concept of cryptocurrencies comes into play.
Cryptocurrencies were introduced as a direct replacement for the prevalent financial system. These currencies were introduced to end the monopoly of international institutions on the daily economic affairs of common men. The basic idea behind these cryptocurrencies was to decentralize the transactions so that people could directly transact with one another without having to rely upon any banks.
The idea was revolutionary in the financial system. Ir threatened to cripple the status quo of the banking industry by introducing a new form of payment. This was achieved through the creation of blockchain technology. Blockchain technology proved to be a game changer in the financial industry.
At first, there was only one cryptocurrency named Bitcoin or BTC. It was introduced after the economic meltdown of 2008. In the early years, the BTC didn’t gain much attention from the public and mainly remained hidden away.
However, the introduction of blockchain technology was a revolutionary idea. Many people opposed its creation in the start but soon began to understand and accept its importance in daily life. Blockchain technology quickly became famous and as a result, Bitcoin became famous as well. Investors from all over the world invested their assets into purchasing Bitcoin.
This suddenly increased the demand for Bitcoin globally and the price of Bitcoin skyrocketed. Suddenly, everyone wanted to gain hold of this currency and hence the global demand made Bitcoin famous.
There are only two methods of obtaining Bitcoin. The first one is that you can purchase Bitcoin with your local currency. This is like purchasing a grocery from a store or shopping online. You just need to create a crypto account online, put in your card details and then purchase the desired amount of Bitcoin.
This is just like shopping online but instead of getting an actual product, you will get a digital asset. This method is widely used by various investors who are interested in the field of cryptocurrencies and want to get their hands on the extremely valuable Bitcoin.
The only issue with this process is that Bitcoin is extremely expensive to purchase. Even 1.0 BTC costs thousands of Dollars these days. This means that only big-time investors could purchase such an expensive currency. This leaves no room for few or new investors because they do not have the capital to invest in such endeavors.
However, there is another way to earn Bitcoin. A way that is suited to all investors worldwide. It is called mining. This is the second way of earning Bitcoin. This way is more popular than the previous one. Because it requires less investment and one can have a continuous supply of Bitcoin in this way.
This basic concept of mining is that the users set a system. This system is connected to the internet. Then the users install mining software on the system. This mining software utilizes the resources of the system to solve complex mathematical problems and validate transactions. In the end, the user is rewarded with a quantity of Bitcoin as a reward. This method is called “Proof of Work” or PoW.
Proof of work is a process by which users can mine Bitcoin. This process requires a mining rig consisting of various GPUs or ASICs. This equipment is connected to the internet. The GPUs and ASICs solve complex mathematical problems and validate different transactions.
The validation of transactions by various miners at a time worldwide decentralizes the transactions. This means that when users transfer or trade cryptocurrencies, they do not need a bank to perform those transactions. They can do it without the facility of the bank. This is done by using the technology of blockchain.
At the start, Bitcoin was very easy to mine. Users used to mine Bitcoin on their personal computers without using any dedicated hardware. However, as the currency became famous, more investors started mining and as a result, the process of mining became harder and harder. The mining shifted to GPUs and then it shifted to ASICs.
These tools cost thousands of dollars and are difficult to maintain as well. Moreover, the energy consumption associated with mining Bitcoin is also very high. This means that users must also pay bills to keep their mining rigs going.
The process of mining is dependent upon the amount of hash rate the system produces. Hash rate can be thought of as the speed of the mining system to mine Bitcoin. This means that the mining system with more has rate will mine more Bitcoin than the one with a low has rated.
Hash rate is the ability or power of the system to solve mathematical problems and validate transactions. The hash rate can also be thought of as the measure to hold transaction data and then validate it by various other methods.
Hash is an alphanumeric code of fixed length. This means that the hash consists of a code. This code consists of alphabets and numbers. This code contains information on recent transactions in a coded form. This code is fed to the system and the speed with which the system solves and decodes it is called the hash rate. The hash is based on blockchain technology.
The base of Bitcoin is the formation of blocks. These blocks contain necessary information on the recent transactions in coded form. A single block cannot stand on its own. It needs to connect with various other blocks and form a chain. The blocks contain certain information that is verified when two blocks are joined together.
This verification validates the transactions carried out and hence the system becomes decentralized. These blocks join together to form a blockchain and this blockchain technology is the base of Bitcoin.
Hashing means verification and validation of the blockchain. The blockchain is verified by creating and joining new blocks. The smaller blocks are easier to mine than the big ones. The block contains codes that are solved by the mining system. The system solves the blocks, joins them together in the form of a chain, verifies the transactions, validates the network, and in return, the user is rewarded with Bitcoin.
Hash rate is another important term while mining. Calculating the correct mining rate will enable the users to calculate the correct profitability of their mining equipment.
Since there are a lot of costs involved with setting up the mining equipment, the miners expect to earn a handsome profit from their mining equipment. This can be done by calculating the correct hash rate. The hash rate will help the miner to determine the extent of their earnings per month.
There are various types of mining equipment. Users use CPUs, GPUs, and ASICs for mining purposes. Each machine has a different hash rate. The hash rate of the machine depends upon the processing speed of the machine, the memory of the machine, and the power needed for mining equipment.
These are the variables that affect the speed of the system and the hash rate. If these variables are of high value, then the hash rate increases and vice versa.
As more miners get into the mining field, the blockchain gets crowded. This means that more miners are trying to mine new blocks, and there are more systems available to mine new blocks and form a blockchain.
This increases the overall difficulty of the system because the mining rewards remain constant. This means that if there are ten miners on the blockchain and they mine one block then the reward will be the same as if there are a hundred miners.
This means that the same amount of reward will be distributed among ten people or hundred people. So, if hundreds of people are competing for the same block, then the competition would get extremely fierce and that is why the difficulty of the Bitcoin blockchain keeps on increasing. By this logic, one can deduce that more hash rates will be required to mine the Bitcoin than before.
Proof of Work of Bitcoin
As already mentioned, Bitcoin is based on the “Proof of the Work” consensus or PoW consensus. This proof of work mechanism should be understood in detail if you wish to understand the dynamics of the Bitcoin network. The proof of work mechanism is given below:
The first step for the system is to propose a new block. This is the first step of mining the system and proposes the formation of a new block. Then the system utilizes its power to hash the block. This process is usually considered the header of the most recent block. After combining and hashing the system generates a hash number.
This hash number is very important and it is specific for each machine. If the hash number has a greater value than the target value then the system moves forward with the mining and the problem is solved and the system gets the reward.
On the other hand, if the hash value is lower than the target value then the system needs an increment and the hash number is increased by the system and the system again performs the comparison. When there is more than one block mined by the system, then these blocks are chained together to make a blockchain.
Why is hash rate important?
The concept of hash rate is important not only for miners but for the entire blockchain network as well. For miners, the hash rate is an indicator of the processing speed of their mining rig. This means that the faster rigs have high hash rates and these rigs can mine Bitcoin faster than the rigs with lower hash rates.
For blockchain networks, the hash rate has a deeper and more important meaning. For blockchain networks, the hash rate is an indicator of the stability, safety, and security of the blockchain. This means that if there are more miners on the blockchain, it means that there is more competition for mining a new block.
The transactions are verified many times over and the network remains secure. Tough competition in the hash rate is also an indicator that the network is safe from any threats.
A cyber attack on the Bitcoin blockchain can have devastating effects on cryptocurrencies. This means that various BTC could get stolen from the network or the investors might lose their investments. Moreover, hackers could steal valuable personal information of the miners and could sell it on the black market. This would put the lives of the miners at risk.
Furthermore, it would also halt all ongoing transactions on the blockchain which would adversely affect the price of Bitcoin. Therefore, any cyber attack on the blockchain could have a devastating effect on the entire market and it must be protected at all costs.
Since blockchain technology is merely software, this means that the system is usually prone to various outside attacks and threats. The blockchain is always at risk of getting attacked by cyber terrorists. There is always a threat of cyber attack on the network. A high hash rate makes sure that there are no attacks on the network because the blockchain gets difficult for criminals to hack.
How does BTC hashrate work?
The Bitcoin network utilizes SHA-256 cryptographic (which is a hashing function) as the technology for hashing. This technology is then used for converting data into a string of 256-bit. This is a relatively simple function to understand the rest of the hashing functions. This is because this is a one-way function. This means that you can determine the hash rate from the input but it is impossible to do so the other way around.
A hash rate can be expressed in millions, billions, trillions, quadrillions, and even quintillions of data. This means that the hash rate expresses the number of calculations carried out per second. For example, a hash rate of 1 BH/s means that one billion calculations are made per second by the system. Similarly, a hash rate of 1 Th/s means that the system is capable of performing one trillion calculations per second.
On average, one block of Bitcoin can be mined on the network in about ten minutes. If someone mines it faster than ten minutes then the overall difficulty of the network increases. Moreover, the Bitcoin network automatically increases the difficulty of the network after mining every 2016 block. This means that the mining of Bitcoins gets tougher with time.
How does the hash rate affect the Bitcoin price?
Three main factors affect the hash rate of Bitcoin. These factors are computational power, network difficulty, and mining profitability. This means that these are the prime factors that are considered by the miners before pooling their resources into Bitcoin mining.
First of all, computational power is the base of all mining equipment. The miners try to put maximum computational power into their mining equipment. This is because the computational power is directly related to the hash rate and higher hash rates produce higher rewards. Therefore, computational power is the most important factor when considering mining.
Next, the network difficulty is also an important factor that contributes to the price of Bitcoin. A difficult network will have a higher price than an easy one. This is because the network difficulty is an indicator of how many miners are mining on the blockchain. If more miners are mining on the same blockchain, it means that the blockchain has a high demand and hence the price of Bitcoin gets high.
Lastly, the profitability of the coin is the most important factor. Miners will only mine the coin that offers some profit at the end of the day. This means that if the coin offers fewer rewards than what the miners are putting into it, they won’t opt for that coin. Since the price of Bitcoin is more than any other currency, the profitability of the coin is also higher than other currencies.