Bitcoin (BTC) is a payment network on which payments can be made without needing a middleman. Peer-to-peer payments are made digitally in a way that can be compared to making a payment with physical cash; it cannot be reversed just like you cannot take back a €5 bill after you have paid for something. An important part of this process are the bitcoin miners. When you read about miners, you most likely also read about this thing called “hash rate.” In this blog article, we will explain what the hash rate is and why it is so important for Bitcoin.
The task of bitcoin miners
For those of you that are new to Bitcoin, or just don’t exactly know what miners actually do, here is a crash course in bitcoin mining. Bitcoin miners are machines, or computers, that execute a piece of code. With that code, they encrypt transaction data which generates a single hash key consisting of 64 characters. The catch is that this hash key must start with a certain amount of zeroes before it is accepted by the Bitcoin network.
The amount of zeroes that is needed is decided by the Bitcoin protocol and is dependent on how many miners are participating, among other factors. The chance that a hash key starts with three zeroes, for example, is small considering every one of these characters can be a digit from 0 to 9 or a letter from A to Z. Miners therefore rapidly generate hash keys in order to increase their chances of finding the right hash key.
Once a miner generates a hash key that satisfies the requirements, it successfully “solves” a block. This means the miners may add its block, which contains transaction data, to the Bitcoin blockchain. In return for his work, the bitcoin miner receives 6.25 BTC. This is the moment a bitcoin miner “mines” new bitcoins.
Why does the hash rate matter so much?
The above crash course may cut some corners, but the main point is that miners are playing a game of chance. Their goal is to find a hash key that satisfies the requirements. The best way to increase your chances to find the right key is by generating a bunch of them. By guessing more often, the chance you guess the right answer increases!
But how often does the average bitcoin miner take a guess? Once per minute? Once per second? Close! When we look at the Bitmain Antminer S19, a popular mining rig, you’ll see with which kind of astronomic values these rigs work. The Antminer S19 can generate a hash rate of 95 terahashes per second.
That is 95.000.000.000.000 of those 64 character hash keys, every second. Now that’s how you increase the chances of guessing the right hash key for sure! Hash rate, however, is not the only factor that is important. Efficiency is another one of them. In a future blog post, we will explain why efficiency is so important.