# Understanding Hash Functions: Cryptocurrency Security & Blockchain Use

![Hash: A function that converts an input of letters and numbers into an encrypted output of a fixed length.](https://www.investopedia.com/thmb/rWMe2mYVN6fhiETuVASjG-QN0EU=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/hash.asp-final-f341f429ebc1421ab167f2f97609b5eb.png)

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> **Definition**
>
> A hash is a math function that inputs data of any size and generates a fixed-size output that is encrypted.

## What Is a Hash?

A hash is a mathematical function that converts an input of arbitrary length into an encrypted output of a fixed length. Regardless of the original amount of data or file size involved, its unique hash will always be the same size.

The foundational properties of cryptographic hashes are collision-free, hidden, and puzzle-friendly. Deterministic hashing is key for data validation and the encryption challenge. In blockchain technology, [hashes prevent](https://www.investopedia.com/terms/h/hashed-timelock-contract.asp) fraud and double-spending. Besides Bitcoin's SHA-256, there are different hashing algorithms utilized across various cryptocurrencies.

### Key Takeaways

*   A hash converts data of arbitrary size into a fixed-size encrypted output, enhancing data security.
*   Cryptographic hash functions ensure blockchain security by making it difficult to deduce original data from hashed outputs.
*   Secure hash functions are essential for validating data integrity and preventing fraud in blockchain technology.
*   Bitcoin mining uses hash functions to solve puzzles, securing transactions and reaching network consensus.
*   Different cryptocurrencies utilize various hash algorithms like SHA-256, Keccak256, and Blake3 for securing data.

## Understanding the Mechanics of Hash Functions

Hash functions take inputs of different lengths and produce outputs of a fixed length. Cryptographic hash functions offer both message-passing and security features. Hash functions are algorithms that determine how information is encrypted.

For example, Secure Hashing Algorithm 256 (SHA-256) encrypts input through steps such as:

*   Converting it to binary
*   Creating hash values
*   Initializing constants
*   Chunking data into bits
*   Creating a message schedule
*   Running a compression loop
*   Modifying the final values

Using SHA-256, the word “Hello” will produce an output that is the same number of characters (64) as “Hello world” and “Hello John.” However, the hash will be significantly different for all three—keep in mind that capital letters change the hash as well:

*   **Hello**: 185f8db32271fe25f561a6fc938b2e264306ec304eda518007d1764826381969
*   **Hello world**: 64ec88ca00b268e5ba1a35678a1b5316d212f4f366b2477232534a8aeca37f3c
*   **Hello John**: a8119595d77342cc73c93697a7f70920d3f4ded5d458e31907607e997ff76868

 The hash function is deterministic, so it produces the same result for identical input. While SHA-256 can generate a hashed output in milliseconds with very little computing power, it makes determining the input difficult.

> **Fast Fact**
>
> Not all cryptocurrencies use SHA-256. Keccak256, Equihash, Scrypt, Ethash, and Blake3 are also examples of hashing functions used.

Hashing is ideal for [cryptocurrency](https://www.investopedia.com/terms/c/cryptocurrency.asp) security since reversing it with modern technology would take thousands of years.

Hash functions are commonly used data structures in computing systems for tasks such as checking the integrity of messages and authenticating information. Cryptographic hash functions add security features, making detecting the contents of a message or information more difficult.

In particular, cryptographic hash functions exhibit these three properties:

*   **They are collision-free**: This means that no two different input hashes should map to the same output hash.
*   **They can be hidden**: It is difficult to guess the input value for a hash function from its output.
*   **They should be puzzle-friendly**: It should be difficult to select an input that provides a predefined output. Thus, the input should be selected from a distribution that’s as wide as possible.

> **Tip**
>
> Because of the features of a hash, they are used extensively in online security—from protecting passwords to detecting data breaches to checking the integrity of a downloaded file.

## The Role of Hashing in Blockchain Technology

The backbone of a cryptocurrency is the [blockchain](https://www.investopedia.com/terms/b/blockchain.asp), which is a globally distributed ledger formed by linking together individual blocks (files) of transaction data and information through hashing.

Blockchains only contain transactions that are validated. Validation is completed by comparing hashes, which prevents fraudulent transactions and [double-spending](https://www.investopedia.com/terms/d/doublespending.asp).

### How Bitcoin Uses Hashing for Security and Verification

Cryptocurrencies use hashes in different ways. For instance, miners solve [Bitcoin](https://www.investopedia.com/terms/b/bitcoin.asp)’s hash problem by using the data in a block as input and generating a hash.

The goal is to generate a hash that is equal to or less than the network’s target hash. The mining program adjusts variable numbers until it generates a hash less than or equal to the [target hash](https://www.investopedia.com/terms/t/target-hash.asp).

Once the problem is solved, each node compares the block header by hashing it twice and comparing its result to the new block’s hash.

## What Is the Main Purpose of Hash?

Hashes have many purposes. In a blockchain, they serve as a way to compare data and secure it. For an enterprise purpose, it could be used to compress data for storage purposes.

## What Is the Simplest Hash Function?

The mid-square method is one of the simplest. You square a number and use the middle two digits as the hash. For example, squaring the number 61 gives you the result 3721. The hash would be 72, the middle two numbers.

## What Is a Hash in Cryptography?

A hash is a mathematical function that converts a variable input to a deterministic hexadecimal number.

## The Bottom Line

Hashes in cryptocurrency blockchains are predictable hexadecimal numbers. Hash functions prevent data alteration in cryptocurrency blockchains by comparing hashes to ensure transaction validity and prevent fraud, like double-spending.

Bitcoin and many other cryptocurrencies rely on the deterministic nature of hashes to establish secure and validated transaction records. Despite being computationally simple, hashes are near impossible to reverse-engineer, making them a cornerstone of cryptographic security.

Different cryptocurrencies use various hash algorithms, which allow for more adaptability and versatility in the crypto world. The practical implications of using hashing for online security goes beyond cryptocurrencies to include data integrity and password protection.

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> **Article Sources**
>
> 1.  Movable Type Scripts. “[SHA-256 Cryptographic Hash Algorithm](https://www.movable-type.co.uk/scripts/sha256.html).”
>     
> 2.  Boot.Dev. “[What Is SHA-256?](https://blog.boot.dev/cryptography/how-sha-2-works-step-by-step-sha-256/)”
>     
> 3.  National Institute of Standards and Technology, NIST Technical Series Publications. “[Recommendation For Applications Using Approved Hash Algorithms](https://nvlpubs.nist.gov/nistpubs/Legacy/SP/nistspecialpublication800-107r1.pdf).” Page 4.