How Are Bitcoin’s Hash Rate, Difficulty, Fees & Mempool Related? PlatoBlockchain Data Intelligence. Vertical Search. Ai.

How Are Bitcoin’s Hash Rate, Difficulty, Fees & Mempool Related?

How Are Bitcoin’s Hash Rate, Difficulty, Fees & Mempool Related? PlatoBlockchain Data Intelligence. Vertical Search. Ai.

To mine bitcoin, miners use highly specialized computers to basically guess a certain number (slightly simplified). When a miner finds the number that the network is currently looking for, it earns the rights to create a new block on the Bitcoin blockchain, take its block subsidy, choose which transactions to include in that block and collect the fees of those transactions. At the time of writing, all miners that are active on the Bitcoin network are estimated have a total capacity (‘hash rate’) of 170 Exahashes per second (EH/s), which is 170,000,000,000,000,000,000 hashes per second.

In Bitcoin’s first year in existence (2009), it was still possibly to mine Bitcoin on the CPU (‘Central Processing Unit’; which is basically the central chip in a computer that takes care of lots of things) an average consumer computer, as the network’s hash rate was just a few million hashes per second. Over time, more computers joined the network and eventually chips that were better at heavy number crunching (GPU or ‘Graphics Processing Unit’; the chip in a computer that is applied for graphical tasks and linear algebra) or even hardware that is custom made for Bitcoin mining (an ASIC, or ‘Application Specific Integrated Circuit’) was used.

As you can imagine, as the network’s hash rate increased by a multi-trillion-fold from that first year until now, it was necessary to make it a lot harder to guess that certain number to ensure relatively stable block intervals.

In Bitcoin, ‘difficulty’ is the measure for how hard it is to find that number that the network is looking for. Every 2016 blocks (14 days if block intervals are 10 minutes), the Bitcoin software basically calculates the block intervals during that period and adjusts the difficulty so that at current capacity, the average block interval will be roughly 10 minutes again.

The interplay between Bitcoin’s difficulty, (the 14-day moving average of the) hash rate and block intervals over the last three months is visualized in figure 3. During the first visualized difficulty adjustment period (the red column on the left), the hash rate was declining (downtrend in black line). As network capacity decreased, block intervals increased (uptrend in blue line), making it necessary to decrease the difficulty (small drop in orange line after this period).

In three difficulty adjustment periods after (first green column in figure 3), the hashrate was increasing again, blocks came in faster than planned and difficulty adjusted upwards three times. Mid-April (right red column), there was a large power outage in China that caused a massive drop in Bitcoin’s hash rate, slowing down blocks a lot and making a huge downwards difficulty adjustment necessary after the period. After this happened (right green column), the power outage itself was solved and the downwards difficulty adjustment made it much easier for miners to create blocks again. As a result, some miners with less efficient hardware and/or more expensive energy could earn a profit mining again, actually overcompensating the previous loss of hash rate, actually sending it to new all-time highs.

Source: https://dilutionproof.medium.com/how-are-bitcoins-hash-rate-difficulty-fees-mempool-related-6bf6b3b580ff?source=rss——-8—————–cryptocurrency

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