Last Updated on February 24, 2022
Borrowed from this great explanation on coindesk:
https://www.coindesk.com/tech/2021/02/05/what-does-hashrate-mean-and-why-does-it-matter/
Hashrate refers to the total combined computational power that is being used to mine and process transactions on a Proof-of-Work blockchain
A “hash” is a fixed-length alphanumeric code that is used to represent words, messages and data of any length. Crypto projects use a variety of different hashing algorithms to create different types of hash code – think of them like random word generators where each algorithm is a different system for generating random words.
Before new transactional data can be added to the next block in the chain, miners must compete using their machines to guess a number. More specifically, miners are trying to produce a hash that is lower than or equal to the numeric value of the ‘target’ hash by changing a single value called a ‘nonce’. Each time the nonce is changed, an entirely new hash is created. This is effectively like a lottery ticket system, where each new hash is a unique ticket with its own set of numbers.
Because each hash created is random and impossible to predict, it can take millions of guesses – or hashes – before the target is met and a miner wins the right to fill the next block and add it to the blockchain. Each time that happens, a block reward of newly minted coins is given to the successful miner along with any fee payments attached to the transactions they store in the new block.
Adding a block to blockchain “confirms” of all the transactions stored within that block Every time a new block is added on top of earlier blocks, those earlier transactions are reconfirmed again and again, becoming more and more impossible to change.
The hashrate is an important metric for assessing the strength of a blockchain network – more specifically, its security. The more machines dedicated by honest miners to discovering the next block, the higher the hashrate rises and the harder it becomes for malicious agents to disrupt the network.
A 51% attack, for example, is when a single individual or group of attackers purchases or rents enough mining equipment to control over 50% of a blockchain’s hashrate. Because blockchains are trustless and abide by a rule known as the “longest chain rule,” a person or group that controls a majority of the hashrate could, in theory, block or reorganize transactions and even reverse their own payments. This would create double spend issues which, in turn, would completely undermine the integrity of the underlying blockchain.
A fall in hashrate, therefore, means a reduction in the cost to perform a 51% attack, making the network more vulnerable.