Bitcoin 101: Hashprice Explained | Hashpower Academy

Video Transcript:

Hello there and welcome to the HashPower Academy, your place to learn anything and everything to do with Bitcoin from the fundamentals underneath the price. But interestingly, today we’re going to be talking about a mining metric called the hash price. It was a metric developed by a mining company called Luxor, which are very much integrated across all the different areas of Bitcoin. But today, yeah, we’re going to talk about their metric that they developed, which is now an industry standard for understanding the amount of Bitcoin you can earn per terahash per day. That’s what hash price boils this figure down to. And it’s in a dollarized amount. And hash price is the quantity of subsidy and fees multiplied by the price. So, the dollarized value of the amount of Bitcoin the entire network is earning based on difficulty underneath. So essentially how much Bitcoin you can earn per terahash of compute that you’re producing per day. And so we’ll look at the time aspect, the quantity aspect and maybe that comparison that what hash price is directly comparing is the amount of Bitcoin you can earn per terash per day dollarized amount in Bitcoin. But also what the comparison is is that same hash price is arbited potentially off across into other blockchains such as Bitcoin Cash because interestingly enough the hash price stays pretty much the same across all SH 256 blockchains because if one offers a higher reward hash rate switches to the other chain and brings it back down. So there’s an arbitrage aspect. We can also discuss that Bitcoin hash rate contracts are established from this pricing metric and also uh that uh interesting bitcoin per kilowatt that I like to discuss a lot. It truly connects the compute and economic side to the underlying energy side that miners use and potentially is a better metric but that’ll be for the end of the video. So the first thing to understand is that Bitcoin blocks are typically 144 per day. That’s one every 10 minutes roughly. But here’s the thing. Because miners are always joining the network, the the network hash rate is growing. The difficulty is increasing. And the difficulty increases if the software of all the different nodes has understood that blocks have come in quicker than 10 minutes. If they’ve come in 9 minutes, they’ll jump they’ll jump difficulty uh 10 11% depending. And so the first thing to understand is we’re looking at a day, but a day could be 147 blocks. It could be 140. It could be 144. It’s not an exact amount, but we’re measuring in a relative 24-hour period how many blocks are mined. And that determines the quantity and subsidy, the 450 Bitcoin roughly per day plus fees. Multiply that 450 Bitcoin by the Bitcoin price, and that’s the dollarized amount of Bitcoin being earned by the entire network. And then that difficulty adjustment is an understanding of how much hash rate the network hash rate which is earning all of that bitcoin. So hash price essentially divides that down to a terraash or you may see this figure right now at $55 per pahash which is 1,000 terraash. And so the first thing to understand is if the difficulty increases diff if it increases hash price decreases because if more more miners show up to the party each person gets a smaller slice. If more hash rate joins the network the bitcoin per terahash per day dilutes down a smaller quantity of bitcoin mined per terahash per day. And we have continually seen this over the course of Bitcoin’s entire history. And we will continue to see it to trend inevitably to zero, but never reached there. The gap between zero and the quantity of Bitcoin earned per terash per day is when we completely replace subsidy as the revenue for miners with fees. So we’ll never reach zero because zero to the quantity mined per terahash per day will be the active amount of fees being paid to the miners going into the future hundreds of years. And on this side of things, the the unit of account of hash price is that the the the key metric in the middle is that quantity of hash rate and how much Bitcoin you’re earning and how much energy cost associated to that because that’s the key metric for the miners is they’re looking at hash price to understand, okay, I’m going to spend this much on electricity today and I’m going to earn using this metric this amount of Bitcoin per terahash per day. and that comparison obviously they want to spend less on energy than what they receive in Bitcoin in return. And so one of the things that miners are going to do is when they think that the hash price is really high is they could potentially lock it into a contract which is essentially to say that right now if if the hash price was to jump really high and a minor thinks it will come down, he could potentially sell his future ability to produce Bitcoin to a buyer. So he’s selling a hash rate contract and being paid for that quantity of Bitcoin per terahash per day at say let’s say 10 cent per terahash per day or $100 per pahash per day and he’s locked in that rate because he thinks it’s going to drop and the buyer he’s taken the risk of the upside and so the first thing I’d like to say is if anyone’s looked at hash rate contracts or nice hashes easy mining or any of those sorts of things what you are buying into is not the ownership of a machine and the mining versus buying accumulation curve versus just buying Bitcoin. You’re buying into the hope that price increases, subsidy stays the same, fees increase, or the difficulty drops. That’s how you get paid as a hash rate contract buyer. You’re not buying into the economics of mining. You’re essentially trading you. And so the first thing to say about hash rate contracts is they are going to have particular use cases. But the key thing is that hash price will be the pricing system because it’s the miner observing the value of his compute per terahash per day. Um and then the other side of this is what that comparison is. The hash price of Bitcoin right now is 5.5 cent per terahash per day is well Bitcoin cash also has a quantity of hash rate right right now it’s about 3x a hash right and bitcoin right now I think is like 900 x aash now what happens is the hash price is relevant across all sh 256 blockchains because what happens is if the hash price of bitcoin cash let’s just say they had a load of fees or the price shot up and now the hash price for Bitcoin Cash is I don’t know 6 cent per per per terahash per day. Well, you’ll see some of this hash rate switch across to Bitcoin Cash and capture all of those fees and economically autocon convert their Bitcoin cash into Bitcoin. And when they see that realignment of the hash price across different blockchains going back to normal, they’ll go back to to mining Bitcoin. And so there is a real computational battle of um 0ero to one that there truly only will be one large SH 256 blockchain because it can computationally capture the fees of another blockchain and then auto switch it back. So the yes, Bitcoin cash very short term increases its security, but the miner of Bitcoin is capturing those fees in one blockchain and economically shifting the value to another. So depreciating it and so Bitcoin essentially kills all competitors in the computational sense and um my most favorite metric which hash price doesn’t consider in the economics of mining but uh you need the hash price as part of the calculation which is I like to use um bitcoin per kilowatt hour. So not the understanding of what one terraash earns you in quantity of bitcoin but how much one kilowatt hour earns you in quantity of bitcoin which requires you to look at the efficiency of the machine. So you do 1 kilowatt divided by the efficiency of your machine say 20 jewels per terahash and then you would multiply it by the hash price which is 24 hours. So you divide it down to an hour. So you get your bitcoin earned per kilowatt per day. So it shifts the unit of account down to the electricity level because then the miner has the direct understanding of the quantity of Bitcoin he earns per kilowatt incorporating his local efficiency and the global revenue rate of hash price. So hash price is great, but I feel like Bitcoin per kilowatt hour is a lot clearer for a lot of Bitcoin miners and also newcomers looking to understand the entire stack of energy compute and economics of Bitcoin compute and and electricity. So yeah, I’m just going to write Bitcoin per kilowatt hour because it’s my object bias in this debate. BTC and yeah truly if you if we consolidate things down per kilowatt hour it it just provides that clear understanding of inputs versus outputs because the miners are always understanding the economics of how much they can earn per terahash but then they have to they always have to convert that back down to the kilowatt hour level already just to understand the inputs of their energy cost and the outputs that they’re earning and then understanding say which chain is more profitable obviously You can see where all the miners are voting to see where the profitability is. And yeah, we will continually see all the different moving parts of these different areas of Bitcoin, but hash price does consolidate a lot of the digital side into a single metric. And uh yeah, so thank you for listening. Hope you enjoy and I will see you in the next one. Goodbye.