What is a Hash Function in Bitcoin?

A hash function is an important element of cryptography. The mathematical function is used to convert a string of characters, a word or a data set of any size into an output of a fixed length. Hash functions are basically used for security purposes and form the core of Bitcoin's cryptographic security.

Origin of Hash Functions

Hash functions chop up information and convert it into another form.

Hash functions have long been used in encryption and digital signatures and are an important part of secure digital communication.

What are Hash Functions?

In cryptography, a hash function is a mathematical function that takes input data of any size and produces a fixed-size output. The product of information that has been mapped by a hash function is called a hash or hash value. The most important property of a hash function is that it is a one-way function. This means that it is easy to calculate the hash value of any input, but it is impossible to retrieve the original input using only the hash value, even if the hash function used is known. A hash function is therefore not reversible.

What is a Hash Value?

The hash value represents the result that was calculated using a hash function.

The hash value is often encoded as a hexadecimal string. This means that the hash value consists of a combination of numbers and letters between 0 and 9 as well as A to F.

Types of Hash Functions

There are many different hash functions, all of which have different properties. The hash function used in bitcoin is SHA256, which stands for Secure Hash Algorithm.

History of SHA256

The SHA (SHA0) was developed by the National Institute of Standards and Technology (NIST) and the NSA (National Security Agency) and introduced in 1993. Due to a weakness in the algorithm, the successor SHA-1 was already introduced in 1995.

In the meantime, there are the hash functions SHA224, SHA256, SHA384 and SHA512. The digit in the name describes the length of the bit sequence of the output.

Where are Hash Functions used in Bitcoin?

Several Bitcoin functions are based on the hash function SHA256. A bitcoin address is a hash value of the associated public key and individual transactions are also identified by their hash values. SHA-256 is also used in the bitcoin mining process.

> Learn more about the Basics of Cryptography behind Bitcoin

Hash Functions in the Mining Process

In the mining process, an average of 3000 new transactions are bundled into one block. In the process, the transactions are put into an order. These bundled transactions are used together with the hash of the previous block to generate the new hash. With this newly generated hash, the new block is complete. Because the hash of a block contains the hash of the previous block, the order of the blocks in the blockchain is inviolable.

In order for a block to be added to the bitcoin blockchain, miners must find a hash that meets the predefined difficulty level.

> Learn more about Bitcoin Mining Difficulty

Example of a Hash

To illustrate what a hash looks like, we gave the text «Pocket Bitcoin» as input value to the SHA-256 hash function and got the following value as output: 2990e6def278e1d502089e8d3832c30bc8f884202ab700025e54376bff3cc2e4

From the same input value, the same unique hash is always generated. So, if the slightly customised text «pocket bitcoin» is used as input value, we get the output value: 95841df382eda078daf25205ea6a9d156472e5a901135f2c447fe9f9d0809f25.

The output differs significantly even though the inputs are minimally different. In this example, only a few uppercase letters were converted to lowercase in the input. However, the output, or hash value, has changed so much that no similarities can be seen.

Conclusion

Hash functions play a very important role in the bitcoin network. Hash functions are used to verify the integrity of transaction data to enable the creation of new bitcoin currency units through the mining process.

In addition, hash functions are used to generate unique addresses for all users in the network.