Reading time: 2 minutes
Cryptocurrencies work in very different ways than fiat currencies, being obtained through mining processes and using Blockchain technology as a security mechanism. However, there is something fundamental to the occurrence of these processes in a safe and fraud-proof way: the hash function.
Follow us and find out more about this fundamental algorithm for cryptography.
What is the Hash Function?
The hash function is an algorithm used by the cryptocurrency protocol such as Bitcoin. It can be understood as the encryption of a message, receiving a large amount of data and converting it into an output sequence formed by numbers and letters of fixed length, which is called the hash. The hash process converts a lot of information into a hexadecimal sequence of fixed size and is unidirectional and cannot be undone.
Hash function: security since creation
The hash function is essential for Bitcoin, as it is through it that it is possible to create and trade new currencies. For each Bitcoin value transacted, there is a mining computer in the network performing proof-of-work, which takes this block of data and through calculations turns it into a hash function to be registered in the Blockchain.
The process, however, takes a long time, because for a hash to be valid it must have the number zero as the first 17 digits.
This is what makes cryptocurrencies so secure, as each transaction block receives a hash based on the previous block, making it impossible to modify a hash and therefore defraud the system, as a change in the block hash affects the entire chain of Blockchain.
What types of hash functions?
There are several types of hash functions, however, the most common ones involving Blockchain technology are SHA256 which produces a 256-bit output and RIPEMD, which can produce 128, 160, 256 or 320 bits output.
Main uses of the hash function
The hash function can be used to create Bitcoin addresses, making it smaller than the public key it comes from and making it consistent for the transaction verification phase.
In addition, as previously mentioned, it is essential for mining, as its creation is a fundamental process in the creation of transaction blocks, being used to solve proof-of-work and establishing a link between new transactions and old transactions, guaranteeing the integrity and the impossibility of fraud.
A curious fact is that the miner must perform the hash creation process many times to solve the proof-of-work, while the verification nodes perform the process only once.
The hash function is an essential algorithm so that cryptocurrencies can be transacted safely and without the occurrence of fraud, which is widely used in mining and transaction validation, as well as in creating addresses for receiving cryptocurrencies.
Follow our blog and find out more about the main concepts and news in the world of cryptography.