Today we revisit the concept of BTC hash-rate, something that we have covered some time ago.
After having declined in late 2018 as a result of BTC’s price crash, the hash rate of the Bitcoin network has proven to be resilient and is back on track to reach new highs. A network’s hash power is perhaps the single most important indicator of a network’s security. Greater the hash power, the harder it is to attack a blockchain. As shown in the figure below, Bitcoin’s hash rate has been on the rise since its launch in 2009. The growing hash power highlights the confidence that miners have in the Bitcoin blockchain in the long run, as miners have to decide which blockchain offers the most risk-adjusted reward for mining on a particular chain.
In November last year, when the price of bitcoin had fallen by more than 80% from it peak, there was a meaningful exodus from miners as the margins were compressed and profitability looked bleak. As a result, the network’s hash power declined by more than 25% from the peak, resulting in Bitcoin detractors claiming that the lack of profitability would eventually lead to “mining death spiral.” However, the crucial aspect of Bitcoin mining that was overlooked was that the mining difficulty adjusts itself every two weeks to match the overall hash power of the network, in order to ensure that there is sufficient hash power guarding the network. With prices broadly rising since the last week of March 2019, miners have added deployed more capacity in to the network, in an effort to profit from the rise in Bitcoin prices.