What just happened to hashrate?!

Thursday 07 January 2016

Hashrate and Difficulty exploded in the past couple of months. Something is afoot...

The security of the bitcoin network has cranked up another few notches in the last few weeks, with hashrate and Difficulty reaching all-time highs. 

Brief recap:

  • Hashrate is the collective power that mining computers dedicate to the bitcoin network. As of December 31, this was 743,604,444 GH/s, or 743 thousand million million hashes per second.
  • Difficulty is a measure of how difficult it is to find a hash that meets the given criteria. A hash is, to all intents and purposes, a random number that is the outcome of a computationally-intensive task. It must be below a certain number to be accepted. The lower the number, the more Difficult it is. Difficulty is changed every 2,016 blocks, or roughly 2 weeks (assuming 10-minute block time).


Mining has changed out of all recognition since bitcoin's early days

The more mining rigs are working, the higher the hashrate and Difficulty. Hashrate has broadly risen throughout bitcoin’s history, with a few minor exceptions; as more people find out about bitcoin, and mining chips become more efficient, more computing power is directed at the network - which is a good thing for security.

At the beginning of this year, prices crashed below $300 and settled a little above $200. This was enough to cause many miners to turn off their rigs, because they weren’t seeing a return on their investment - power costs outstripped any income from blocks they found. On several occasions, hashrate fell.

But in the last six months, things have picked up. Hashrate has doubled since the end of July, rising more than 50% in the last 6 weeks of 2015.

What’s going on?

There are several explanations for the renewed interest in mining. One is that bitcoin prices have risen a lot in the past few weeks - almost doubling since October and making mining a more lucrative business again. The really steep increase in hashrate started in November, after the price rise to $500 in the first week of that month.

Then there’s mining company BitFury, which has launched a new generation of super-efficient chips and opened its own data centre in Georgia, taking advantage of cheap power.

Lastly, there’s the looming event of the halving, when block rewards will decrease from 25 BTC to 12.5 BTC. It’s possible that people are looking to bank as many coins as possible before that happens, and - all things being equal - mining becomes less well paid.

The effect of these increases, however, has been to speed up block time significantly. Difficulty changes every 2,016 blocks in order to offset any recent increases in hashrate and keep block time around 10 minutes, but if hashrate continues to increase, blocks will keep being found in less than the target time. And that will have the effect of hastening the halving.

Mining has already changed out of all recognition since bitcoin’s early days, back when first a CPU and then a GPU was all that was required. It’s likely to change almost as dramatically in the coming year.

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