January 3 marked the 13th anniversary of Bitcoin’s genesis block. Coincidentally, and within days, Bitcoin’s hashrate reached an all-time high of 228.92 exahashes per second (EH/s) – this despite the fact that Bitcoin’s performance of late has significantly undershot expectations. What gives?
Hashrate – What is it and Why Does it Matter?
Simply put, “hashrate” refers to the total computational power used to mine and process transactions on Proof-of-Work (POW) blockchains, such as Bitcoin. It is the most widely used metric in evaluating the strength and security of a POW blockchain.
All things being equal, the greater the number of honest miners and associated computational power, the more difficult it becomes for dishonest actors to disrupt or engage in a 51 percent attack.
Accordingly, a drop in hashrate typically makes it easier to perform a 51 percent attack, whereas the opposite is true when the hashrate increases.
Hashrate Recovery Post-China Ban
As Bitcoin developer Jameson Lopp notes, Bitcoin’s hashrate increased by 10 percent in 2021, but that in itself is eclipsed by its recovery following China’s ban on mining:
Weathering and completely recovering from a 50 percent+ drop due to a mining ban by the country with the most hashpower was a major milestone for network resilience.
Jameson Lopp via Twitter
As Bitcoin miners fled China to more friendly regulatory regimes, the US has become the biggest beneficiary in what commentators have described as one of China’s most significant geopolitical blunders. For context, in this year alone an estimated US$900 million in mining equipment is expected to be shipped to the US from China.
What of Price Action?
Historically, the correlation between Bitcoin’s price and the hashrate is shaky, although drawing on historical data, some inferences can be made.
For example, Bitcoin OG Max Keiser suggests that “hashrate precedes price. New ATH hash means new ATH price incoming. $220k in 2022 [is] in play.” While he might have missed the mark in 2021, the chart below reflecting both hashrate and price does appear to indicate Bitcoin is trending lower than one would expect at the current hashrate.
Others in the Bitcoin community are more circumspect:
While some Bitcoiners bemoan recent price action, if you’re in it for the long haul, the fact that the Bitcoin network is stronger and more robust than ever ought to be sufficient cause for celebration.
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