How Is the Hash Rate of Your Cryptocurrency Calculated?

Cryptocurrency miner
Cryptocurrency miner

A cryptocurrency’s hash rate, also called hash power, is the measure of a cryptocurrency miner’s performance. The faster the hash rate, the more profit a cryptocurrency miner can make. Even though the Securities and Exchange Commission (SEC) is going slowly in approving digital currency for trading in the financial marketplace, it has approved a digital currency product for JPMorgan. Mining the digital currency is extremely competitive and the hash rate plays an important role. To put the hash rate in perspective, let’s look at the role a cryptocurrency miner plays, along with the mining process.

If you are considering investing in cryptocurrency, you may want to talk to a financial advisor since cryptocurrency investing is not for beginning investors due to its extreme volatilityi.

Mining Cryptocurrency

It sounds strange to speak of the process of mining and a currency at the same time. Like many financial concepts and assets, cryptocurrency has a language all of its own. Cryptocurrency is not a traditional currency with a central bank in a nation, like the U.S. Federal Reserve, backing it up. Cryptocurrency is not fiat money like paper dollar bills. Instead, cryptocurrency is a digital currency with no central authority serving as a sort of regulatory body.

Cryptocurrencies are referred to as “trustless,” because there is no regulatory body to put your trust in. Instead, the market is overseen by cryptocurrency miners and network nodes. Instead of trusting in one regulatory authority, you trust in the decentralized system.

In the cryptocurrency world, mining is the development of a unit of currency by using computational power to solve a series of very difficult mathematical problems or puzzles. Mining is extremely competitive. The first miner to solve all the puzzles gets to add the unit of currency to the blockchain ledger and wins the unit of cryptocurrency.

What Is the Hash Rate?

Cryptocurrency mining "farm"

Cryptocurrency mining “farm”

The hash rate is the speed at which a cryptocurrency miner operates. Specifically, it is the speed of the computing device used by the miner to develop the unit of cryptocurrency. Speed is literally the most important part of the mining operation. It is the speed, or hash rate, that determines how fast the miner can solve the puzzles, add the unit of currency to the blockchain ledger, and receive the cryptocurrency in return.

The hash function is a mathematical algorithm that takes digital data as an input and spits it back out as an encrypted string of letters and numbers. The cryptocurrency miner uses the hash function to solve the mathematical puzzles required to build one unit of currency. The speed at which the solution is found is the hash rate.

It is no longer possible to use a desktop, or even laptop, computer to mine cryptocurrency. The central processing units (CPUs) are simply too slow. If you try to use a laptop computer with a graphics processing unit (GPU), even that is not enough power. It would take more years than you can imagine to mine one Bitcoin, an example of one type of cryptocurrency. Instead, you need a dedicated cryptocurrency miner as your hardware.

Calculating the Hash Rate

The hash rate is best found empirically. Every cryptocurrency mining device has its own hash rate, which can vary. The other variables that help determine the hash rate are the stability of the mining device’s connection to the server, the program settings for mining and the hash rates of other miners in your mining network based on the algorithm being used. The number of other miners working in your network also has an effect on the hash rate. Most mining is now done within networks of other miners.

If you want to calculate your hash rate, there are several ways that you can approximate it. You can use one of the widely available online calculators, like whattomine.com, to determine the hash rate of your mining hardware. It includes benchmarks for many different mining devices. You can also download mining software and run benchmarks on your mining hardware. To further complicate the hash rate, it will vary based not only on your mining hardware but on the type of cryptocurrency you want to mine, Bitcoin vs. Ethereum for example.

To get a precise measurement of your mining hardware’s hash rate, you can download software designed for this purpose, enter an address for where your cryptocurrency is stored and initiate it. Depending on the number of algorithms you are testing, you will soon get a measurement of your mining device’s hash rate.

Hash rates are usually measured in hashes per second, mega hashes per second and sols (solutions per second of hash computations used on one blockchain). The numbers are very large and extend into the zeta hashes per second, which is one septillion (1 followed by 24 zeros) hashes per second. Sol is a measurement used on only one blockchain.

The Bottom Line

Female cryptocurrency miners

Female cryptocurrency miners

Hash rate, or hash power, is the unit of computational power in cryptocurrency digital networks. It is best calculated empirically due to the large numbers of variables and cryptocurrency miners on any given mining network. It is seldom wise to attempt to mine cryptocurrency, unless it is one of the lesser-known currencies, without a mining network. As more digital coin is mined, hash rates get faster and difficulty increases. No longer can cryptocurrency be mined on a desktop or laptop computer with any degree of speed and efficiency. Special mining hardware and software have been developed to deal with the ever-increasing hash rates required to be a successful miner.

Tips for Investing

  • Investing in cryptocurrency is very risky and not meant for beginning investors. If you think you might want to invest, it would be best to talk with a financial advisor. Finding one doesn’t have to be hard. If you use SmartAsset’s financial advisor matching tool, you can find a financial advisor to your liking. If you’re ready, get started now.

  • Cryptocurrencies are only one type of alternative asset that can be invested in. Other alternative investments include things like real estate, precious metals, rare musical instruments and fine art.

Photo credit: ©iStock.com/South_agency, ©iStock.com/NiseriN, ©iStock.com/StefaNikolic

The post How Is the Hash Rate of Your Cryptocurrency Calculated? appeared first on SmartAsset Blog.


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