Hashrate refers to how much computing power is being used by a network (like the Bitcoin network) to process transactions. It can help you gauge the health and security of a crypto network.
For crypto traders, hashrate is an important measure of how decentralized a crypto’s proof of work network may be against hackers. That’s because the higher a hashrate is, the more difficult and costly it is for someone to attack the network. A sudden decrease in hashrate could lead to crypto platforms halting trading or delisting a coin to protect their customers.
A hashrate is a measure of how many calculations can be performed per second and can be measured in billions, trillions, quadrillions, and quintillions. For example, a hashrate of 1TH/s means one trillion calculations can be performed every second.
These calculations are being measured based on mining. Mining is the process of verifying and adding transactions to a blockchain network, such as Bitcoin. People who mine crypto often use specialized hardware that can perform many trillions of calculations a second. In exchange for verifying and adding transactions, miners are rewarded with crypto.
Generally, the more miners participating in a network, the higher that network’s hashrate is because there are more miners competing for the reward. The fewer miners, the lower the hashrate.
A lot of things can affect the hashrate. Miners can choose which crypto they want to mine. Since mining involves costs (energy, hardware, time) miners are incentivized to mine crypto with the highest potential return on investment.
A high hashrate indicates there’s more competition, but the reward could still be worth it. For example, the Bitcoin hashrate has been as high as 179 exahashes per second (1 exahash = 1 quintillion), but miners were still incentivized to participate because the potential reward was worth the cost.
Miners generally decide which coins they want to mine by evaluating the cost to mine a coin versus the reward. Take Bitcoin for example. Every couple weeks, the Bitcoin protocol automatically adjusts how difficult it is to mine new bitcoins based on the current hashrate. When the hashrate is high, the mining difficulty is high. When the hashrate falls, the difficulty falls with it.
Depending on that difficulty, miners can calculate if it's worth their effort to mine that particular crypto. It’s a self-regulating system.
A lower hashrate means less computing power is required to verify and add transactions to that crypto blockchain. This could make that crypto less decentralized because it would take fewer miners to take over the network.
The less decentralized a crypto is, the more risk associated with it. If a bad actor takes over a network, they can heavily disrupt the network. This poses a huge risk for investors and crypto platforms.
If a crypto’s hashrate is steadily or rapidly decreasing, crypto platforms may choose to limit trading or delist that crypto to protect themselves and their customers from loss of funds.
Robinhood monitors hashrate changes for the crypto we offer, and in the event a coin’s hashrate decreases to a level that poses a security risk for our customers, we may take steps including limiting trading and transfers.
A higher hashrate means more computing power is required to verify and add transactions to that cryptocurrency’s blockchain. This makes that cryptocurrency more secure because it would take more miners—and cost more in energy and time—to take over the network.
Many websites track hashrate for crypto that we offer, such as BitInfoCharts.
A 51% attack is when malicious attackers attempt to take over a crypto network by gaining control of more than half (51%) of a network’s mining hashrate. If attackers gain control of a network, they can falsify new transactions, spend coins they don’t have, prevent transactions from being validated, and more.
Picture miners as voters who can approve or invalidate a transaction. If you have 100 voters in a room, 51 or more of them would have to agree for a transaction to be validated. Even if 40 of the 100 voters were malicious attackers, they would still get outvoted by the 60 other voters.
But if only 10 people were in the room, and 6 of them were malicious attackers, those attackers would have the majority (over 51%) of the voting power.
Generally, these types of attacks are uncommon because it can be prohibitively expensive to try and take over a crypto network.
For example, Bitcoin’s hashrate is measured in hundreds of exahashes per second, which is a 1 followed by 18 zeros. If an attacker wanted to take over Bitcoin’s network, they’d need to provide more than 51% of Bitcoin’s hashrate. The cost of the specialized mining equipment and electricity needed to do so makes it very prohibitive.