What is hashing and how does it work?

Hashing plays a critical role in the cryptocurrency industry, particularly when it comes to ensuring the security of a blockchain network. It’s a process that is fundamental to the proof-of-work (PoW) consensus mechanism, and has been since Bitcoin — the world’s first cryptocurrency — made its debut back in 2009.

The hashing process itself is a relatively complicated one, but understanding it and its function in cryptocurrency doesn’t have to be difficult. In this AAG Academy guide, we’ll explain hashing in simple terms, and look at how it helps make cryptocurrency so secure.

What is a hash?

In cryptography, a hash function is a mathematical algorithm that turns an input value of any length into an encrypted output, called a hash, of a fixed length. In other words, this process turns any string of letters and numbers that could be dozens of characters long, such as the data inside a block on the blockchain, into a hexadecimal number of a predetermined length.

Regardless of the amount of data inside each block, then, every single one gets a hash of the same size. The size can vary depending on the hashing method used, and not every blockchain uses the same system. This process makes it nearly impossible to figure out or guess what the original input was based solely on its encrypted hash.

The use of hashing has been widespread for decades in computer systems, and can be used for lots of things, like verifying that a piece of software has not been tampered with. Since Bitcoin’s launch in 2009, hashing has been an integral part of the cryptocurrency industry and plays a large part in ensuring that blockchain data is secure and cannot be interfered with.

How does hashing work?

How hashing works can vary depending on how it is used, so to keep things simple, let’s focus on its use within the cryptocurrency industry.

Whenever a user submits a transaction to a blockchain that uses the proof-of-work (PoW) consensus mechanism, such as Bitcoin, it joins a queue of requests that are waiting to be validated by a network made up of thousands of nodes and miners. This requires the creation of a new block, into which a number of transactions are grouped.

Once the transactions are processed and approved, the block is closed and then gets added to the rest of the chain that makes up the network’s distributed ledger. Before being added to the chain, however, each block is assigned a hash. This is created by taking all of the data the block contains, then running a mathematical algorithm that turns it into a unique string of characters.

The length of this string depends on the hash function that is used. For instance, Bitcoin uses a method known as SHA-256, which means that all Bitcoin hashes are 256 characters long, regardless of the amount of data each block contains. Others in the cryptocurrency industry may be as little as 128 characters, and some are as long as 512 characters.

As long as the data that is input stays the same, you will always end up with the same hash. However, if the data changes at all — even by just one character — the hash becomes entirely different. This prevents any block from being tampered with, since changing its hash means it will no longer be recognized by the rest of the chain and therefore gets rejected.

To make cryptocurrency blockchains even more secure, there are certain conditions each hash must meet. With Bitcoin, for instance, the hash must begin with a certain number of zeros, which can change depending on how busy the network is. This means miners must attempt many different inputs until they are able to generate a hash that meets the threshold.

This process requires sophisticated hardware to be carried out effectively, which is why the PoW system is so energy-intensive — and so competitive. It’s also the reason why miners spend so much money on powerful computer rigs in an effort to gain an advantage over others and increase their chances of being rewarded with new BTC.

What are the types of hashes used in crypto?

As we’ve touched upon above, different hash functions produce different outputs, and a large number of them are used throughout the cryptocurrency industry. In addition to the SHA-256 function used by Bitcoin, other popular functions include:

• Ethash
• Equihash
• Cryptonight
• PIVX
• Scrypt
• X11

All of these functions are used in proof-of-work systems in much the same way that the Bitcoin network uses them. Although they produce similar results, the time it takes to use them, how secure they are, and other factors can vary. The SHA-2 function is considered to be one of the most secure within the cryptocurrency industry.

How secure are hash algorithms?

Although some hash functions are considered more secure than others — usually because they result in a longer hash string — all are considered to be incredibly safe, which is why hashing is used so prevalently throughout the cryptocurrency industry and many others. As we mentioned earlier, it is almost impossible to work out a piece of input data based on its hash.

Altering the input data in any way also results in an entirely different hash. For instance, if you assign a hash to a piece of software, such as a computer application, users can verify its authenticity by simply checking if its hash matches the original. If a bad actor tampers with the software in any way, the hash no longer matches and you can then determine it’s not genuine.

The blockchain takes this one step further to enhance security. Every time a new block is created, its header contains the hash used in the previous block, so every block is tightly linked. That’s how the network knows when a hash is changed: It can no longer be linked to a previous block and is therefore booted from the chain.

When all these things are taken into account, we can see that hash functions — particularly when used in cryptocurrency — are incredibly secure. If they weren’t, the industry would have switched to a better solution by now, and hash functions wouldn’t remain so important to the PoW system used by the majority of cryptocurrencies in existence today.

References

• What is a hash
• Hash
• What is hashing
• Cryptocurrency hashing algorithms