Hash function in cryptography: how data is protected in the blockchain

What is a Hash: The Foundation of Cryptographic Security

Hashing is a mathematical process that transforms input data of arbitrary size into a fixed-length output string, called a hash or hash code. This technology is a key component not only of blockchain and cryptocurrencies but also of modern information security as a whole.

If you think of a hash as a digital fingerprint, its essence becomes clearer: each set of original data generates a unique and immutable identifier. For example, the phrase “Hello, world” in the SHA-256 algorithm is transformed into a string like 4a5c2a4b8c9d2e3f1a7b6c9d1e2f3a4b5c6d7e8f9a0b1c2d3e4f5a6b7c8d, and even adding a single period will completely change this result.

Key Properties of Hashes

A hash differs from the original data by several fundamental characteristics:

• Irreversibility: It is impossible to recover the original data from the hash. This property is called one-wayness and guarantees that even if the hash leaks, the original information remains protected.

• Sensitivity to changes: The slightest change in input data (adding a character, changing case) completely alters the hash. Two documents differing by just one letter will have entirely different hashes.

• Fixed size: Regardless of the size of the input data (whether it is a single word or a multi-gigabyte video file), the hash always has the same length for a specific algorithm.

• Uniqueness of hash for data: The same set of input data always generates an identical hash when using the same algorithm.

How Hash Functions Work

A hash function is an algorithm that takes input data and performs a series of mathematical operations to produce a unique output. The process operates based on the following principles.

Main characteristics of the algorithm

1. Deterministic: The same input always yields the same result. The phrase “Blockchain” when hashed with the MD5 algorithm always transforms into the same value.

2. Performance: Hash functions operate at high speed even when processing large volumes of data, enabling their use in real-time systems.

3. Collision resistance: The probability that two different data sets produce the same hash is practically zero when using modern algorithms.

4. Irreversibility: Attempting to “reverse” a hash to obtain the original data is mathematically impossible.

Example of data transformation

Let’s consider a specific example of SHA-256 hash function operation. If you input the text “Cryptocurrency,” the algorithm performs numerous bitwise operations and returns a result like: 7f3a8b9c2d1e5f4a6b9c8d7e1f2a3b4c5d6e7f8a9b0c1d2e3f4a5b6c7d8e.

If you input “Cryptocurrency!” (with an exclamation mark), the hash will change completely: 2a4b5c6d7e8f9a0b1c2d3e4f5a6b7c8d9e0f1a2b3c4d5e6f7a8b9c0d1e2.

This demonstrates the critical importance of accuracy when processing data in cryptographic systems.

Common algorithms and their applications

Currently, various hash functions are used, each with its own characteristics:

• MD5: Historically widely used, but now considered cryptographically compromised due to vulnerabilities. Not recommended for critical applications.

• SHA-1: Once a standard, but discovered vulnerabilities led to its deprecation in favor of newer algorithms.

• SHA-256: Part of the SHA-2 family and widely used in blockchain networks, including Bitcoin and Ethereum. Provides a high level of cryptographic security.

• SHA-3: Represents a new generation of hash functions with improved architecture and cryptographic properties. Gradually replacing SHA-2 in new applications.

The Role of Hashing in Blockchain Infrastructure

Hashing serves as the foundation upon which the security and integrity of all blockchain systems are built. It is not just a technical tool but a fundamental principle ensuring data immutability.

Blockchain structure and block connectivity

A blockchain is a sequence of blocks, where each block contains:

• Transaction data
• Timestamp of creation
• Digital signatures of participants
• The hash of the current block (calculated based on all block data)
• The hash of the previous block

This structure creates an unbreakable chain: if someone attempts to alter data in an early block, its hash will change, breaking the link with all subsequent blocks. The network will immediately detect the tampering attempt.

For example:

• Block 1 contains data and has a hash: abc123xyz
• Block 2 contains the hash of block 1 (abc123xyz) plus its own data, generating a hash: def456uvw
• If block 1 is changed, its new hash (for example, new789abc) will not match the hash recorded in block 2, and the chain will be broken

Protection of transactions and digital signatures

When a user initiates a transaction in a cryptocurrency network, the following occurs:

1. Transaction data (sender, recipient, amount, fee) are combined into a single set
2. This set is hashed using the selected algorithm
3. The resulting hash is signed with the sender’s private key, creating a unique digital signature
4. The network verifies the signature using the sender’s public key

If the hash or signature is altered, the verification will fail, and the transaction will be rejected. This guarantees that no one can forge a payment from another user.

Proof-of-Work consensus algorithm and hashing

In networks using the Proof-of-Work consensus mechanism (for example, Bitcoin), miners perform the following actions:

1. Take the proposed block data
2. Add a random number (called nonce)
3. Hash the combined data
4. Check if the result meets the difficulty condition (for example, starts with a certain number of zeros)
5. If the condition is not met, change the nonce and repeat the process

This process requires significant computational resources and is the basis of economic security for blockchain networks.

Practical Applications of Hashing in the Digital World

Hashing extends far beyond cryptocurrencies and is used in various fields of information security.

Integrity verification of downloaded files

When downloading software, updates, or other files, a checksum (file hash) is often published:

• The developer computes the hash of the original file, for example, using SHA-256
• Publishes this value on the official website
• The user downloads the file and independently computes its hash
• If the values match, the file is guaranteed not to be corrupted or modified during transfer
• If the values differ, the user receives a warning about a potential threat

Cryptographic storage of passwords

When a user registers on a web service or sets a password:

• The password is not stored in plain text in the database
• Instead, the hash of the password is computed and stored
• During login, the system hashes the entered password and compares the result with the stored hash
• If the hashes match, access is granted
• If the company’s database is compromised, attackers will only obtain hashes, not the actual passwords, which cannot be reconstructed from hashes

Digital signatures and document authentication

Hashing is used to create digital signatures that confirm:

• The authenticity of the document (it was indeed created by the specified person)
• The integrity of the document (it has not been altered after signing)
• The impossibility of denying authorship

This is used in e-commerce, legal documentation, and government administration.

Data categorization and search

Hash tables are used in computer systems for:

• Fast data lookup in large databases
• Organization of cache memory
• Checking for data presence without storing the entire data

Advantages and Technical Limitations of Hash Functions

Main advantages

• Processing speed: Hashing is performed in fractions of a millisecond, allowing its use in real-time systems

• Compact representation: The hash occupies a fixed and usually small amount of memory, convenient for transmission and storage

• Versatility: Hash functions are used in all aspects of modern cryptography and information security

• High security level: The inability to reverse the computation provides cryptographic robustness

Current challenges and limitations

• Collision possibility: Although the chance that two different data sets produce the same hash is extremely low, it is theoretically possible. This is especially critical for older algorithms like MD5.

• Algorithm obsolescence: As computing power advances, algorithms once considered secure may become vulnerable. MD5 and SHA-1 are already compromised.

• Energy consumption in mining: Proof-of-Work mechanisms require significant computational resources, with environmental and economic impacts.

• Quantum threats: The development of quantum computers could threaten current hashing algorithms, necessitating transition to post-quantum cryptography.

Evolution of Hashing and Trends for 2025

Currently, the industry is experiencing a period of significant evolution in cryptographic hashing.

Transition to SHA-3: The new SHA-3 standard is gradually being adopted in critical systems due to its improved architecture and additional cryptographic guarantees.

Preparation for a post-quantum world: Organizations and developers are beginning to explore and implement hash functions resistant to quantum attacks.

Energy efficiency optimization: New consensus protocols (such as Proof-of-Stake) reduce computational demands, while hash functions are optimized to minimize energy consumption.

Integration into IoT and edge computing: Hashing is becoming increasingly important for data protection in the Internet of Things and distributed data processing systems.

Frequently Asked Questions

What is a hash in the context of cryptography?

A hash is the result of applying a hash function to a set of data. It is a unique, fixed-size string of characters that serves as a cryptographic fingerprint of the original data.

Why is a hash function called “irreversible”?

Because mathematically, it is impossible to recover the original data from the resulting hash. This property guarantees that even if the hash leaks, the original information remains protected.

Which hashing algorithm is the most secure currently?

SHA-256 and SHA-3 are considered the most reliable at present. SHA-256 is widely used in cryptocurrencies and critical infrastructure, while SHA-3 is a newer standard with enhanced cryptography.

Can hash collisions occur?

Theoretically yes, but the probability is so minimal that it is practically zero for modern algorithms. For older algorithms (MD5, SHA-1) collisions have already been found, making them unsafe.

Conclusion

Hashing is not just a technical detail of cryptography but a fundamental pillar upon which the security of the modern digital world is built. Understanding how hash functions work is critical for anyone interacting with cryptocurrencies, digital signatures, or modern security systems.

From protecting blockchain transactions to ensuring the integrity of downloaded files and safeguarding passwords, hashing remains an indispensable tool. The development of new algorithms and adaptation to quantum computing challenges ensure that this technology will remain relevant and vital in the coming decades.