Cryptocurrencies like Bitcoin and Ethereum are digital assets that you can buy or sell without having to use an intermediary, such as a bank or broker. Instead, you complete transactions through a blockchain network made up of cryptocurrency miners from all over the world. This network is secured by adding a layer of cryptography to every transaction. Miners have to solve complex mathematical puzzles to add them to the blockchain, and when they do, a hash is generated.

A cryptocurrency network's security and health can be measured by its hash rate. This refers to the number of miners working to verify transactions and the speed at which they can generate hashes in a proof-of-work network. Here's a closer look at what hash rate is and what to know about this important metric.


    What is hash rate?

Hash rate is a measure of the total computational power being used by a proof-of-work cryptocurrency network to process transactions in a blockchain. It can also be a measure of how fast a cryptocurrency miner's machines complete these computations.

Miners use computers to run computations on complex mathematical puzzles based on transaction data. These systems generate millions or trillions of guesses per second as to what the solutions to these puzzles could be. These are hashes, alphanumeric codes that are randomized to identify a single, unique piece of data.

The goal is to be the first miner to come up with a block of transaction data that contains the correct solution and meets all the criteria to be considered valid. Valid hashes in proof-of-work networks have to be authenticated by other miners by measuring if the appropriate amount of computational power was used to produce the hash. Once the block has been validated, it's added to the chain and the miner receives a reward in newly minted cryptocurrency.

"Blockchains need computers to process and validate transactions," says David Kemmerer, CEO and cofounder of CoinLedger. "The more computers compete to validate transactions by trying to guess the next hash, the more secure the network becomes. Thus, the higher the hash rate for a given proof-of-work blockchain, the more secure it is and the less vulnerable to attacks it is."

Bitcoin and Ethereum, the two largest cryptocurrencies in the world, currently use proof of work to confirm transaction blocks before they're added to the network blockchain. Other cryptocurrencies including Bitcoin Cash, Bitcoin SV, Dogecoin, Litecoin, and Monero also use proof of work.


    How is hash rate measured?

Hash rate is a measure of the number of calculations that can be performed per second, which can be in the billions, trillions, quadrillions, and quintillions and represented by the following notations:

* KH/s (kilo): hashes per second in the thousands
* MH/s (mega): hashes per second in the millions
* GH/s (giga): hashes per second in the billions
* TH/s (tera): hashes per second in the trillions
* PH/s (peta): hashes per second in the quadrillions
* EH/s (exa): hashes per second in the quintillions

How hash rates are represented can vary from network to network, and even miner to miner, because it depends on the speed of the computers being used and/or the number of miners in a network. For example, Bitcoin uses the SHA-256 cryptographic algorithm to calculate hashes and measures hash rate in exahashes per second (EH/s). One exahash equals one quintillion hashes. Ethereum is currently measured in terahashes per second (TH/s). One terahash equals 1 trillion hashes.

"The total network hash rate is approximated by comparing the average time between mined blocks versus the network difficulty at a point in time," says Matt Kunke, CFA and research analyst at Global X ETFs. "The Bitcoin network today has a hash rate of approximately 190 EH/s, so all the miners across the network are calculating the output of the SHA-256 cryptographic hash function approximately 190 quintillion times per second on average."


    Why is hash rate important?

Hash rate is incredibly important to cryptocurrency miners. Because they are constantly in competition with other miners to be the first to generate a valid hash, they want their machines to solve puzzles as quickly as possible. If they're using equipment with a hash rate that is lower than their competition, they won't win the race to be the first as often. If they work within a network that has a high hash rate, they are also competing with a large number of other miners. Both impact miners' profitability.

"Hash rate is one way to measure a miner's likelihood of mining a block," says Kunke. "It is also a measure of how costly it is to mine a block, making it one of the key variables determining the profitability of Bitcoin mining. Given the Bitcoin inflation schedule is predetermined, a higher network hash rate means more computational power is competing for the same fixed share of new Bitcoin. If a miner keeps their hash rate constant while the network's hash rate is rising, that miner's expected future bitcoin rewards will decrease, while their costs will remain constant, reducing profitability."

Investors also look to hash rate as a measure of network security. The higher the hash rate, the more difficult it is for a bad actor to launch an attack on a network because there are more computers validating transactions.

"In order to hack a cryptocurrency, a hacker will need to own more than 51% of the network, meaning more than half of the hashing power," says Sang Lee, CEO and co-founder of VegaX Holdings. "The higher the hash rate is, the more expensive it becomes to attack the network, as more power is needed."


    Why is hash rate important to investors?

While the prices of cryptocurrencies may sometimes seem to move in tandem with the hash rate, the correlation isn't always clear. Some experts see little indication that hash rate influences cryptocurrency prices when looking at the long term.

Cryptocurrency prices, however, often have an impact on hash rates, according to Gabriel Wong, co-founder of Cyberdyne Tech Exchange.

"When the Bitcoin prices are high, the hash rate tends to increase as more miners join the network due to fatter margins," Wong says. "As the price goes down, the margin shrinks, and fewer miners (especially the less-efficient ones) can remain profitable."

In the long run, hash rates tend to go up over time. Increases in profitability are likely to drive more miners into the networks. Advances in computational technology will also make mining more efficient and less costly for miners. However, Bitcoin is set to decrease its mining reward in half in 2024, which will necessitate more resources being used to validate blocks, possibly causing profitability to go down. There's no telling how this will impact the cryptocurrency's hash rate.