On-chain data shows that the Bitcoin mining hashrate has just closed an all-time high (ATH). Here’s what this could mean for BTC.
Bitcoin Hashrate Remains High Despite Market Decline
“Mining hashrate” refers to an index that keeps track of the total amount of computing power that miners have connected to the Bitcoin network.
BTC is a blockchain that works on a consensus system called Proof-of-Work (PoW), so miners use their computing power to solve certain mathematical puzzles.
However, it is not there, where the total hashrate works in parallel. Instead, validators compete to be the first to solve the same problem, using their individual strengths. The reward for being the first is the chance to add the next block to the network.
Although there is no BTC power of the cluster, that does not mean that the total hashrate has no results or utility. First, the more computing power is connected to the network, the better the security of BTC, given that the new added power is sufficiently distributed.
The index also serves as a way to determine sentiment among miners. If the value of the metric increases, it means that new miners are joining the network and/or old ones are increasing their resources. Such a trend suggests that miners believe that BTC is a profitable business.
On the other hand, the drop in hashrate means that some of the validators have decided to release their mining rigs, possibly because they can’t break anymore.
Now, here’s a chart from Blockchain.com showing the trend in Bitcoin hashrate over the past year:
The value of the metric appears to have been following an upwards trajectory in recent months | Source: Blockchain.com
As seen in the graph above, the Bitcoin mining hashrate set a new ATH back in mid-December, but the index then saw a decline as the price of BTC itself fell. Miners get their rewards in BTC, so the price of the cryptocurrency can be an important factor in their income.
Interestingly, while BTC has yet to show any substantial recovery, the index has reversed course and is back near the ATH. The fact that miners are not ready to go back to their farms would suggest that they believe the network will pay off in the end.
As mentioned before, the absolute hashrate can have some real effects on the blockchain. One such effect is on network difficulty, a factor that governs how hard miners can get their work done.
The BTC network wishes to limit how much block subsidy miners receive within a given time period, so whenever miners increase their computing power, it responds by increasing its difficulty enough to keep the miners’ speed the same as before.
Given that the mining hashrate is close to ATH, it is not surprising that the difficulty is sitting at a new record.
The trend in the mining difficulty over the past year | Source: Blockchain.com
BTC price
At the time of writing, Bitcoin is floating around $96,600, up 1% over the past seven days.
Looks like the price of the coin has been following an upward trajectory recently | Source: BTCUSDT on TradingView
Featured image from Dall-E, Blockchain.com, chart from TradingView.com