Hashrate and Difficulty - Network Security Indicators

What Is Hashrate

Hashrate is an indicator representing the total computational power of miners participating in the Bitcoin network. The unit is EH/s (Exahash per second), where 1 EH/s means 10^18 hash computations per second.

A high hashrate means more miners are competing on the network, which also indicates a higher level of network security. The higher the hashrate, the exponentially more expensive it becomes to execute a 51% attack (network takeover attack).

Hashrate is like Bitcoin network's "immune system." The higher it is, the more resistant the network is to external attacks.

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What Is Difficulty

Mining difficulty represents how hard it is to generate a new block. Bitcoin is designed so that one block is created approximately every 10 minutes, and difficulty automatically adjusts to maintain this target.

Difficulty Adjustment Mechanism

Bitcoin's difficulty automatically adjusts every 2,016 blocks (approximately 2 weeks).

• If the last 2,016 blocks were generated faster than 20,160 minutes (2 weeks) → Difficulty increases
• If the last 2,016 blocks were generated slower than 20,160 minutes → Difficulty decreases

This mechanism is one of Bitcoin's most elegant designs. It ensures that block generation speed remains consistent regardless of how many miners join or leave the network.

BitInsight Difficulty Adjustment Panel

The BitInsight dashboard provides real-time data about the next difficulty adjustment.

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Relationship Between Hashrate and Price

Long-term Correlation

In the long term, hashrate and Bitcoin price show a positive correlation. When prices are high, mining is profitable, so more miners join, and when more miners participate, network security strengthens, solidifying Bitcoin's value foundation.

However, there is a lag in the short term.

Price Leads, Hashrate Follows

Generally, price changes occur first, and hashrate follows. This is because purchasing, installing, and operating mining equipment takes time.

• Price rise → Mining profitability increases → New miners deploy → Hashrate rises (weeks to months lag)
• Price drop → Mining profitability decreases → Inefficient miners exit → Hashrate drops (days to weeks lag)

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Miner Capitulation

Miner capitulation is the phenomenon where Bitcoin price falls below mining costs, causing miners to abandon mining or sell their Bitcoin holdings. This occurs during extreme bear market phases and has historically served as a strong signal of market bottoms.

Signs of Capitulation

Hash Ribbon

The Hash Ribbon compares the 30-day and 60-day moving averages of hashrate.

• 30-day MA < 60-day MA: Miner capitulation zone. Hashrate is declining.
• 30-day MA > 60-day MA: Capitulation ending, recovery beginning. Historically a buying opportunity.

The Hash Ribbon "buy" signal has shown very high accuracy in Bitcoin history. The point when miner capitulation ends and hashrate begins to recover has often coincided with market bottoms.

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Investment Implications of Difficulty Adjustments

Meaning of Difficulty Increase

• Miners are deploying more resources to the network
• Reflects positive outlook on mining profitability
• Network security is strengthening

Meaning of Difficulty Decrease

• Some miners are leaving the network
• Mining profitability may have deteriorated
• However, temporary decreases immediately after halving are natural adjustments

Watch for Consecutive Decreases

One or two difficulty decreases are normal. However, three or more consecutive decreases may signal miner capitulation and warrant close observation.

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Halving and Hashrate

Bitcoin's [halving](the event where block rewards are cut in half) directly impacts hashrate.

Pattern Before and After Halving

1. Before halving: Miners maximize hashrate to capture the last high rewards.
2. Immediately after halving: Rewards are cut in half, profitability plunges. Inefficient miners exit, temporarily dropping hashrate.
3. Months after halving: As price rises, mining profitability recovers, and hashrate reaches new all-time highs with deployment of more efficient new-generation miners.

This pattern has repeated in the 2012, 2016, 2020, and 2024 halvings.

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Geographic Distribution of Hashrate

Geographic distribution of hashrate is also important information.

• Before 2021: China accounted for approximately 65% of total hashrate
• After 2021 China mining ban: Dispersed to US, Kazakhstan, Russia, and others
• Currently: US holds the largest share, with even distribution across other regions

Geographic decentralization of mining is a positive factor that strengthens network decentralization and censorship resistance.

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Practical Applications

Using BitInsight

The BitInsight dashboard allows real-time monitoring of hashrate, difficulty, and difficulty adjustment predictions.

1. If predicted difficulty change is -5% or more, it signals deteriorating mining profitability. Check alongside miner revenue.
2. If hashrate continuously reaches new all-time highs, it signals healthy network state.
3. If large changes are predicted early in a difficulty epoch, it means something significant has changed in the market.

Combining with Other Indicators

• Hashrate decline + MVRV below 1.0 → Strengthened bottom signal
• Hashrate all-time high + price all-time high → Confirms healthy bull market
• Hashrate decline + increased exchange inflows → Warning of miner selling pressure

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Summary

Hashrate and difficulty are core indicators showing the security and health of the Bitcoin network. They show a positive correlation with price in the long term, and miner capitulation has historically been a strong signal of market bottoms. Using the real-time hashrate, difficulty, and difficulty adjustment prediction data provided by BitInsight, you can quickly assess the current state of the network.

Next article: Miner Revenue and Puell Multiple - Reading Miner Selling Pressure