In the crypto market, we can expect that important changes to cryptocurrencies used in tradable pairs can negatively and positively impact its fluctuations. One of the main contributors to these impacts is the Hash Rate.
We can define Hash Rate as the general processing power of all the mining nodes in a cryptocurrency’s network. Mining involves a lot of trials, as it explores the algorithm, making several calculations before reaching a result.
By adding more processing power to this massive guesswork, the odds of new coins being mined also improve. When this happens, the cryptocurrency can go through an adjustment process - either manual or automatic - in the algorithm’s difficulty, making it either easier or harder to be broken. These adjustments can be programmed to reduce the Hash Rate in half or to gradually make it easier, adding more coins to the network. They are regularly applied because a cryptocurrency’s stock is not infinite.
In Bitcoin, for example, there is an automatic setting in the network that reduces the mining rewards for every 210.000 new blocks generated (approximately every 4 years). Currently, every mined Bitcoin block generates around 6,25 bitcoin. In 2024, it’s expected that this number will be reduced to 3.12 bitcoin. With the reward reduction, an even greater Hash Rate will be needed to generate new cryptocurrencies for the network. This reflects directly on crypto assets.
Below, we can see that the cryptocurrency’s Hash Rate has been ascending regularly, which correlates to the asset’s value increase in the long term:
There is also a direct correlation between a cryptocurrency’s Hash Rate and its mining difficulty. This analysis can be made directly on Vector, on the Network Data tool:
Below, we can see that Bitcoin’s mining difficulty has increased considerably because the Hash Rate (processing power) is on the rise:
Would you like to know more about the Crypto - HashRate indicator and other information related to the processing of networks? Check out this article!
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