Remember 2017? When Bitcoin ran from 4,000 to 20,000 in a matter of months?
Now, Bitcoin has passed the $60K mark, and the narrative says that it’s going to $100k. It’s all sunshine and rainbows.
The total overall hash-rate only increased by about 60%, compared to the 500% increase in the coin itself.
Can you guess what happened after? Hash-rate went up an astronomical 681% over the course of the following months, decimating profit margins as new miners were produced and deployed.
Furthermore, the “blockchain” sector is on fucking fire, with retail euphoria, and institutional money flowing in like a river. This presents us with an incredibly unique financial arbitrage situation.
Mining hashrate is a key security metric. The more hashing (computing) power in the network, the greater its security and its overall resistance to attack.
Although Bitcoin’s exact hashing power is unknown, it is possible to estimate it from the number of blocks being mined and the current block difficulty.
What Is Bitcoin Mining?
Before we get started about Bitcoin Mining, I need to lay down a few key concepts here.
In layman’s terms, Bitcoin Mining is the process of creating new Bitcoin by solving a computational puzzle.
The result of Bitcoin mining is twofold.
First, when computers solve these advanced complex math problems on the blockchain, they produce a new Bitcoin.
Second, by solving computational math problems, Bitcoin miners make the Bitcoin payment network trustworthy and secure by verifying transaction information.
To mine a new block on the Bitcoin blockchain you must find a number called a “nonce“.
This number is extremely difficult to get, and there’s no other easy way to get it. Miners must try calculations over and over again until they brute force the correct result.
Moreover, the brute force method is extremely time-consuming and computationally expensive, as you are literally trying every combination out there to get the SINGLE one that works.
It’s estimated that the total hash rate of the entire Bitcoin network is currently sitting at roughly 151 million THs.
That’s 151 million, TRILLION nonces attempted, per SECOND.
On average, the network ensures that it takes roughly 10 minutes to mine a block, so we can multiply 151 million trillion by 600 to get our answer. That’s 9*10^22, or 900000000000000000000000 different combinations attempted, to crack the block, grab your coin, and move onto the next one.
And it’s only getting more difficult by the day.
The network adjusts how many computations must be done on average to find a valid nonce every 2 weeks.
The aim is to keep the mining times consistent at 1 block per 10 minutes. Therefore, if mining power is doubled, the difficulty would also get doubled.
Rise Of The ASIC
Back in the day, any schmuck could mine Bitcoin and turn a slight profit on their personal computer.
With the insane increase in hashing power, you actually end up losing more money to electricity costs than you would make mining, by a factor of 10. This was largely in part, due to some really smart individuals inventing what is known as the ASIC miner.
Simply put, ASIC stands for Application Specific Integrated Circuit.
Back in 2013, people started developing ASIC chips specifically designed to brute force the SHA-256 function, and find nonces.
These chips are unbelievably good at what they do, with even a shitty chip being a factor of 100 times faster than your standard PC.
ASIC miners are used by all Bitcoin mining operations.
And it’s important to know the costs, and overhead before we proceed.
One final thing to note is that Bitcoin mining becomes incredibly profitable when there is a rapid price increase in Bitcoin.
Moreover, this is due to the “lag” that occurs while new Bitcoin mining hardware is being built and deployed to capture this excess profit.
Bitcoin Mining and ASIC Miners
Nowadays, the average top-of-the-line ASIC miner can generate roughly 110 tera-hashes per second.
That’s 110 Trillion attempts at finding the nonce, per second.
Top mining companies run a fuckload of these miners in tandem, to get a couple of thousand peta-hashes per second.
For reference, one Peta hash is equal to 1000 tera-hashes, meaning that companies running at 1000 Peta hashes are actually running at one million tera hashes, per second.
That is, one million, trillion hashes per second.
As far as we’re concerned, at current-day conditions, if you’re mining at 1000pH/s, you’re generating 4000 Bitcoins per year.
Obviously, this is far from reality as global mining power will increase, but keep this number in mind, as it’s important.
1000pH/s = 4000 coins mined in a year.
The hashing power is estimated from the number of blocks being mined in the last 24h and the current block difficulty.
More specifically, given the average time T between mined blocks and a difficulty D, the estimated hash rate per second H is given by the formula H = 2 32 D/T.
Thanks for reading, please let me know your thoughts and comments below.
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Sagar Sridhar is a personal finance blogger from Canada. His genuine passion for personal finance coupled with his unique style of writing is what stands out. Professionally, he is a computer engineer, agile certified and has a master’s degree in Project Management. His writing has been featured or quoted in the leading Canadian publications such as Credit Canada and many other personal finance publications. While he is juggling between his day job and blogging, he is the main author on this blog and has miles to go before making the final pit stop.