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Sam Wouters is a Research Analyst at River Financial. In this interview, we discuss Bitcoin\u2019s hash rate: what it is, the factors affecting its growth, what this means for Bitcoin\u2019s security budget, and what this means for Bitcoin\u2019s energy needs. In short, there is a symbiotic relationship between expanding Bitcoin\u2019s real-world utility and securing the blockchain.

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Proof of Work is Bitcoin\u2019s central innovation: the development of a process that through game theory keep the network honest, and provides security from outside attack. It enabled a global store of value that does not need centralised armoured physical vaults for security. However, the process of hashing that enables PoW requires large amounts of power, and, with the halving mechanism, requires an increase in Bitcoin\u2019s price, transaction fees, or both, to maintain equivalent network security spending.

Bitcoin\u2019s energy debate in 2022 was completely realigned: rather than being an attack vector for opponents, Bitcoin mining\u2019s energy use has developed into a marketable attribute. Mega miners have sought new revenue streams and cheaper energy which has resulted in huge innovation in the industry. There is a growing realisation that Bitcoin\u2019s utility is a powerful tool in supporting the energy transition and mitigating climate change.

This means that we are potentially entering a paradigm, where knowledgeable decision-makers desire an increase in hash rate to satisfy other needs. But, there is a long list of variables affecting this: Bitcoin\u2019s price, base layer transaction demand, ASIC supply chains, ASIC efficiency, and domestic and international political pressures. This means there is a range of possible forecasts.

Irrespective of the potential future drivers that can influence Bitcoin\u2019s hash rate, fundamentally the issue is that the hash rate must continue to grow. It is Bitcoin\u2019s security budget that is of primary importance. All other demands fall away in this respect. Bitcoin\u2019s adoption, use and price are all critical in relation to this. As are the efficiency gains in mining rigs. If people want to use Bitcoin mining for other purposes they need to be cognizant of these issues.