Why does it matter if the hashrate goes down?
What is Bitcoin's "hashrate", and just what does it actually mean? Is there a reason that a greater hashrate is more desirable and what happens when the rate ...
What's up, party people? Chris DeRose here, community director of the Counterparty Foundation. Today, we have a question from Give Me YouTube 2008 Btchz. He wants to know, "Why does it matter if the harshrate goes down?" There are a few other questions along with that, and we will get to that, Btchz. We'll get to that. So I actually care a lot for the hash rate, personally. It's one of the bigger indicators of network health.
We talked about, "The price is up, the price is down. This is terrible, or it's wonderful." I don't really care about that. The first thing I care about more than anything else is the transaction volume. That tells me, "Is this useful?", and that has sort of been going up, which is also encouraging. Lately, the hashing power has been going down a little bit.
This isn't the first time it has gone down, and it's only going down a little bit, there being last time it has gone down a lot. I think the last two difficult adjustments were down to the degree like one and a half percent or something. For those who don't know, the mining difficulty scales with the number of miners. If there are many miners, there will be more hashing. Every two weeks, every 2016 blocks, I believe, the calibration of the network is adjusted and a new difficulty level is arrived at. So when you change the difficulty, it is a measurement of people, miners, either entering or exiting the system.
I think Btchz asked, "What does it matter if there is more or less hashing? Does that mean we can do more or less blocks?" Btchz, the answer is it doesn't really matter in that sense. There's always going to be a block every ten minutes, whether there is one miner or a million every ten minutes. When the calibration is adjusted, the reason it's adjusted is to keep that synchronization rate. So actually, if there are a lot of miners that enter and it's like one week and a half, that synchronization as a whole will be a little bit faster. Or conversely, if there are fewer miners, it will be a little bit slower. So the average time to block is computed at that 2016 block interval and all the difficult levels are adjusted to suit.
So the reason I think it matters is it shows where the enthusiasm is in the network on people investing to get in, at least at some level. There is a lot of exuberance around the price. It's very common where we see people who want to jump into mining, they are going to print their own bit coins. Typically, that's not a good idea. I think what we saw in a lot of ways, certainly at the last price spike, is that people really invested right at the top. They started to mine and they put in a lot of money into it.
Now, they are kind of finding that mining is hard and they are dropping out a little bit. I don't like that. It's not a good sign. But again, it's one and a half percent that we have gone down, I think, in the last two difficulty adjustments, so we can sustain that for a while. Something that is really important to know though about that is that the mining difficulty is supposed to increase at an exponential rate. It's supposed to increase at an exponential rate due to Moore's law.
Mining infrastructure becomes more efficient. We then have a doubling of power every two years or so. So when the network interval actually goes down like one and a half percent with the difficulty interval that goes down in one and a half percent, there's probably a larger number that is actually being reflected there because you're on an exponential scale. I think we've seen adjustments in the last couple of years to the tune of 30% or something in 2012 or 2011. So we've seen some big changes here. It is an indicator that I'd like to watch a lot because it is an important indicator, and you should too.
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