This article was originally published in The Gatekeepers Issue of Bitcoin Magazine.
“There’s things you know, and there’s things you don’t know, and there’s things you know you don’t know, and there’s things you don’t know you don’t know” – Socrates
The most important bitcoin metric you don’t know or understand is hashprice and today that changes. For Bitcoin miners, hashprice is the metric that keeps them up at night. Hashprice is a critical benchmark that represents the daily revenue earned per terahash and determines the profitability of mining operations. It’s determined by two opposing forces, the bitcoin difficulty relative to the bitcoin mining network hashrate, and the exchange price of Bitcoin, both of which are in constant fluctuation due to market forces. While hashprice is out of the miner’s control, it is the driving force that miners use to optimize their operations. Once you grok hashprice, you will have instant credibility with your rekt mining friends.
One common misunderstanding about hashprice is that it is a fixed value. Hashprice is a dynamic metric influenced by the market price of Bitcoin and the total network hashrate. These factors constantly change, and with them the value of hashprice.
Another common misunderstanding is that hashprice is a reliable indicator of miner profitability. Hashprice can provide valuable insights into estimating miner revenue, but it’s important to consider the cost of electricity, hardware, and maintenance when determining profitability. Remember that not all mining operations are created equal. Even the fabled Antminer S9 is profitable with cheap enough energy and operating costs.
The Duality of Hashprice
Hashprice can be compared to the duality of yin and yang in the sense that it represents the balance between two opposing forces; the market price of Bitcoin and the total network hashrate. Like the yin and yang, these two factors are interconnected and impact each other, creating a dynamic relationship that determines the value of hashprice. When the market price of Bitcoin increases, the value of hashprice also increases, and when mining difficulty increases, the value of hashprice decreases. This balance creates a constantly changing metric. Hashprice can be volatile but ultimately determines the fate of Bitcoin miners around the world.
|Bitcoin Difficulty and Total Hash Rate||Negative|
Difficulty & Hashrate
To calculate hashprice, we first need to understand network hashrate and Bitcoin difficulty.
Network hashrate is a measure of the total computational power of the Bitcoin network. It’s expressed in hashes per second (H/s) and represents the number of calculations that the network can perform in one second. The higher the hashrate, the more difficult it is to mine new bitcoin, as it requires more computational power in order to validate transactions and add them to the blockchain. The hashrate also indicates the overall health of the network, as a higher hashrate generally means that the network is more secure and resistant to attacks.
Bitcoin difficulty is a measure of how difficult it is to mine new Bitcoin blocks. The idea is to keep the average time to mine a bitcoin block steady at 10 minutes. But the mining network is constantly expanding and contracting which leads to faster and slower block times. So, every 2016 blocks (around 2 weeks), the difficulty is adjusted. If, on average, the block times were faster than every 10 minutes then the difficulty is increased, and if the blocks were slower than every 10 minutes, the difficulty is decreased. This all happens automatically by the Bitcoin protocol in what is known as the difficult adjustment, and ensures that the overall rate of new bitcoin creation remains consistent despite fluctuations in the network’s total computational power.
To understand hashprice, we need to run a handful of calculations.
1. Network Hashrate
As we explained above, network hashrate is a measure of the computational power of the bitcoin mining network. This is expressed in hashes per second (H/s) but is commonly referred to as exahash per second (EH/s) at current difficulty.
- 144: With 10 minute block times, the total number of blocks expected in a 24-hour time frame is 144.
- Difficulty * 2^32: By multiplying Bitcoin’s difficulty by 2^32, we are given the average amount of “work” (hashes) needed to solve a block.
- 600: This represents the total number of seconds in a 10-minute block window which is used because hashrate is denominated in hashes per second.
So as of block 776,711:
Hashvalue is a measure of the sats earned per hash per day. We always express this in terahash (TH) per day instead of hash per day since modern asics are measured by their TH performance.
This tells us that 1 TH will earn 302 sats per day. Many Bitcoiners love to watch hashvalue because it views hash on a bitcoin standard. Once we achieve hyperbitcoinization, we won’t need hashprice because energy will presumably be priced in satoshis when sats are the standard.
Arguably the easiest part of the formula, this is the measure of dollars earned per terahash per day.
This tells us that 1 TH will earn us $0.073 per day.
Now that we understand how to calculate hashprice, let’s think about how we can apply hashprice.
Historical Price and Hashrate
Over the past 12 months we saw a historic change in bitcoin price and hashrate. Bitcoin price reached an all-time high of nearly $69k and dropped well below the previous cycle’s market top of $20k to a bottom of $15k. All during this time, hashrate continued to grow.
If you remember the correlation between hashrate and price on hashprice, you’ll quickly realize the effect this has had on hashprice. A decrease in bitcoin price means a decrease in hashprice, and an increase in hashrate means a decrease in hashprice. Hashrate and bitcoin price have traditionally moved in a somewhat correlated pattern; this was not the case for the past 12 months, resulting in a massive decrease in hashprice.
Over the past 12 months the decline in hashprice was significant, as it plummeted down 75%, impacting miners of all sizes. We saw bankruptcies from several industrial-scale miners and only degenerate home miners continued running through the bottom of the hashprice trough.
|Miners||TH/s||Dailly Revenue at Top Hashprice @ $0.22||Dailly Revenue at Bottom Hashprice @ $0.055|
|100 TH (1 S19j Pro)||100||$22.00||$5.50|
|1 Petahash (10 S19j Pro)||1,000||$220.00||$55.00|
|10 Petahash (100 S19j Pro)||10,000||$2,200.00||$550.00|
|100 Petahash (1,000 S19j Pro)||100,000||$22,000.00||$5,500.00|
|1 Exahash (10,000 S19j Pro)||1,000,000||$220,000.00||$55,000.00|
What’s great about this simple table is that it illustrates how easily a miner can calculate his revenues. This applies to home miners and industrial scale miners. You simply multiply your total hashrate by hashprice and you know what you’ll make in a day. Important to remember, this is just revenue; total profits are calculated by subtracting operating costs, typically energy costs priced in KW/h, from mining revenue. This is of course changing on a daily basis but still provides tremendous value for planning and operations.
We can plot out a table of hashprice to see a wide range of scenarios. For example, this winter we saw a bitcoin price in the $15k range and hashrate in the upper 200’s EH/s. With these two data points, you can use this chart to see that hashprice was around $0.05 at the bottom. For modeling out future scenarios within the same issuance epoch, this chart can be handy when estimating what hashprice would be in a 350 EH/s and $100k per bitcoin situation. If that were to happen, miners would be earning $0.257 per terahash. For example, that same earning per terahash would also be achieved at 100 EH/s hashrate and $30k per bitcoin.
As an operator, you could highlight all the cells that are below your break even hashprice, and easily visualize what market conditions must be in order for you to meet profitability.
The reality is that hashprice is a universal truth. It does not care if you are mining in your mother’s basement or helping scale the Texas power grid; hashprice affects us all equally. It is bound by the market forces of bitcoin price and hashrate and is ever-changing. Hashprice is one of the key metrics you need to understand about bitcoin mining. Keep this knowledge in your back pocket. You never know when you’ll be bellied up in a watering hole with a miner in need of company.
You can pull difficulty right off your node by opening the console and typing getdifficulty. Open it and give it a try! Also easily pull the current block height with getblockcount. Below you can see a difficulty of 39,350,942,467,772.63 at block 776149.