Check if your questions is answered - FAQ January 2021

10 months ago

Bitcoin hash rate at an all-time high – Why is this important?

The market has taken a hit at the beginning of December. Many analysts were cheerful and thought that BTC would rally at the end of the year and enter six-figures-territory. It turns out that this was not the case and while the price is consolidating up to a certain level in the last couple of days, Bitcoin is printing a new all-time high when it comes down to the hash rate.

What is the hash rate and why is it important that it is increasing steadily?

Hash rate is security

The hash rate is often seen or used as an indicator of Bitcoin’s overall health. The higher the hash rate the more miners are active and trying to compete for solving the next block and reap the associated block reward. If the hash rate is high enough, the Bitcoin network is secure and cannot be successfully attacked, since an attacker would need more hash rate than the total hash rate available worldwide.

In May 2021 the Chinese government banned Bitcoin mining and while restrictions were not uncommon in the past couple of years ago, this time it was different. The mining industry had to shut down completely in China and the hash rate took a hit.

In the aftermath, they had to find a new home for an industry that was predominantly located in China. And they did. Among the US many miners also migrated to Kazakhstan, Iran, and several other countries.

Hash rate and price form a correlation

There is no causality involved between hash rate and price, but there is a strong correlation. In the past 4 years, the hash rate increased steadily and so did the price. With the current situation, the market faces a phenomenon, because for the first we have witnessed a sharp decline in price, while the hash rate was in fact at an all-time high.

On December 6th the network peaked with 190 EH/s and an average hash rate of 178 EH/s. Of course, nobody can say this for sure, but if history repeats, it means that the price will follow the hash rate in the long run.

Even if things will turn around and the price won’t follow the hash rate, the all-time high is good news. It means that the Bitcoin network is more than secure than ever and that miners are willing to grow their business in the long run, which means that they see value in Bitcoin that other proof of work coins don’t have.

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