What it means
A hash is a fixed-length string produced by running data through a mathematical function. Even a tiny change to the input produces a completely different output, and there is no shortcut to predict it.
Miners therefore have to try huge numbers of inputs until one produces an output below the target. The target hash acts as the difficulty setting.
If the network wants blocks to arrive at a steady pace, it makes the target lower when many miners join and higher when they leave. Bitcoin, for example, adjusts the target roughly every two weeks so that new blocks keep arriving about every ten minutes.
Because success is a matter of chance, a miner's reward depends on how many attempts it can make per second, known as its hash rate. A miner with twice the hash rate finds twice as many winning results on average.
This is why mining has become an industrial activity based on specialist machines and cheap electricity. For a finance team, the target hash matters because it drives the cost of producing coins.
A lower target means more attempts, more electricity and more equipment for each block, which increases the cost of mining. Miners compare these costs with the value of the block reward when deciding whether to keep operating.
The target also protects the network. Rewriting history would require repeating the work, so a very low target makes attacks expensive.
Not all networks use this design, though, as some digital assets replaced proof of work with other methods that use far less energy. For a non-specialist, a useful comparison is a lottery in which the organiser can change the odds.
Lowering the target is like making the winning number rarer, so each ticket is less likely to win, and everyone has to buy more tickets to win as often as before.
In practice
Real-world examples.
Example
A mining company reviews its operations after the network target is lowered by 10%. Each block now needs about 11% more attempts, since 1 / 0.90 is about 1.11. The company calculates that its electricity cost per coin has risen by the same proportion.
Example
An investor in a mining company asks how profits will change if more miners join the network. The company's analyst explains that the target will fall, so each machine will win fewer rewards. The investor treats the company's earnings as sensitive to competition.
Example
A university lecturer demonstrates mining in a classroom with a simple program. She sets an easy target, so students find results within seconds. She then lowers the target to show how the effort rises.
Formula
Calculation
Expected hashes per success = 1 / probability of success per hash
Expected time = expected hashes / hash rate
A mining machine can make 2,000,000 hashes per second. The target is set so that each attempt has a 1 in 1,200,000,000 chance of success. Expected time = 1,200,000,000 / 2,000,000 = 600 seconds, or 10 minutes. If the machine uses 6 kilowatts, the energy used in that time is 6 x (600 / 3,600) = 1 kilowatt-hour, which costs $0.10 at $0.10 per kilowatt-hour.Case study
Seen in the real world.
Copperfield Mining is an illustrative, fictional company that runs 1,000 machines, each making 2,000,000 hashes per second, giving a total of 2,000,000,000 hashes per second. At the network's current target, the company expected to win one block about every 100 hours.
When many new miners joined, the network's total computing power rose, and the target was lowered to keep blocks arriving at the same pace. The company's share of the work fell, and its expected time between wins grew to 125 hours, and the finance director calculated that revenue would fall by 20%, since 100 / 125 = 0.80.
The illustrative company's costs were unchanged, because the machines still used the same electricity. Its margin fell sharply, and the board decided to move machines to a site with cheaper power rather than buy more equipment.
Watch out
Common mistakes.
- Thinking a higher target means harder mining, when a lower target is the harder setting.
- Assuming mining rewards are guaranteed in proportion to effort, when each attempt is a matter of chance and a small miner can go a long time without a win.
- Ignoring the cost of electricity and equipment when judging mining profitability.
Questions
People also ask.
What is a hash?
It is a fixed-length string produced by a mathematical function, and a tiny change in the input produces a completely different result.
Who sets the target?
The network's rules adjust it automatically based on how quickly recent blocks have been found, so no single party controls it.
Do all cryptocurrencies use a target hash?
No, only those using proof of work, while others use different methods to agree on new blocks.
From the founder's library
Take it further with the book.
Build your financial confidence beyond this definition. Shihan's full-length guide, Accounting Fundamentals, takes the same plain-English approach and turns it into a complete, practical playbook for non-finance managers, business owners and students - with chapter-end quiz answers and presentation slides included.
25% off with code MMHQ25, applied at checkout. Priced in USD - checkout may show the equivalent in your local currency.
View the book and save 25%Related