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What are Hashes in Crypto Transactions? All you need to know!

A cryptocurrency’s operation is based on a chain of blocks (blockchain), which is essentially a growing list of encrypted information records, each of which is linked to the previous one using cryptography. Transactions are documented and authenticated within those ‘records,’ but it is not the only thing that may be found within them.

With reference to the Bitcoin blockchain, we will then go over the content of one of the blocks in a chain of transactions. In this approach, we can acquire a better understanding of how it works.

Before you begin, bear in mind that this is an article intended for people who have previously understood the fundamental principles of blockchain and cryptocurrency, or at the very least the most basic concepts of both. If you haven’t previously, it’s essential to start with some of the most fundamental knowledge available.

Crypto Hash

Data encryption, or the protection of material by the use of keys, is accomplished through the use of cryptographic hash functions, which are algorithms that have particular useful qualities. To apply it, the machine takes a message of any size, encrypts it, and gets back a single, fixed-length alphanumeric string (called a digest or just a hash), regardless of the size of the original message.

Its purpose is to ensure that the message (or transaction) in question is, in fact, about that particular message (or transaction) and that it has not been updated before being delivered. If even a single element, or even a single point, of the original message is altered, the hash (digest) is altered dramatically as a result.

A Practical Example of Encryption

For example, we can enter the following message into an online application that will encrypt it with the SHA256 algorithm (which we will discuss later) and it will be encrypted: “Bitcoin is the first cryptocurrency”

And get the following result:


If we added words or changed even one period in the original message, the hash that was generated would change as well, despite the fact that the message would remain the same length (64 characters). Let’s have a look:


Take note of the fact that we only use a period at the end of each phrase. Despite this, the final effect is diametrically opposed to the original. For all other purposes (e.g., using another tool to encrypt the words), the digests of the phrases would remain the same: a specific input always yields the same unique response.

This method ensures that communications are transmitted safely and completely, as it is nearly impossible to deduce the original message from the digest, and consequently it would be impossible to edit the message after it has been sent. One-way or one-way functions are what these are referred to as. We can delve a little more into this.

Hash as a One-way Function

A one-way function in mathematics is a function (relation between elements of two sets) that has the property of being simple and straightforward to calculate, but difficult and time-consuming to invert. It is important to note that “tough” does not imply “impossible.” Actually, in computer science, fully one-way functions are still considered to be pure guesswork.

Hash functions, on the other hand, are intentionally designed to be difficult to reverse. Only then is it conceivable for them to be effective for cryptography, because undoing them would require an inordinate amount of time and resources on the part of the attacker, which would be counterproductive.

While the process of creating a hash is a complex mathematical one, one method of doing so is by the use of modular functions, which would assure the hash’s ‘unidirectionality.’ To put it another way, modular functions are responsible for producing the remainder of a division. As an example, the number 10 mod 3 equals 1, because 10 divided by 3 equals 3 plus a residue of one.

Let’s Understand with an Example

Let us suppose that we have a private key (X) mod 5 = 2 that we want to use to create a hash. Only you would be aware of the value of X, which, let’s say, is 27, because it is equal to 5 divided by 5 and leaves a remainder of 2 in the equation. Consider the following scenario: 5 represents the data from a transaction you completed, and 2 represents the hash generated as a result of that transaction.

Despite the fact that these latter two pieces of information are available to the public, it is nearly hard to determine that your private key is 27 because there are an endless number of ways to reach the result of 2 using the number 5. It’s almost hard to figure out what your “X” number is: it may be 7, 52, 23390787, or anything else.

In practise, this same idea is used in more advanced algorithms and considerably greater volumes of data, increasing the difficulty of determining the source data by a factor of several orders of magnitude. Data that has been secured by a hash function is absolutely secure.

Secure Hash Function Characteristics

There are many different types of hash functions, but all of them must have four key properties in order to be considered safe:

1. Computationally Efficient

Because hash functions are utilised in computers, it is necessary for these computers to be able to complete the mathematical work required to generate a hash in a short period of time.

This may seem intuitive, but it is not. If this were not the case, any procedure that includes the generation of a hash would be prohibitively time-consuming, making its use impracticable. The fact that an ordinary computer can finish the task in less than a second means that for the time being, this is not an issue.

2. Deterministic

This implies that the same message (input) must always result in the same digest (output) each time it is used or consulted, regardless of the context. If the function returned a different random result each time, it would be completely ineffective because it would not be able to verify that it was the original message.

In this particular instance, the purpose of a hash is to verify the authenticity of a digital signature without having access to the private key.

3. Resistant to Pre-image

The output should not contain any information about the input, which means that it should be completely opaque. As a result, a hash should always have the same length in the digest, regardless of the size of the message being processed.

No indication should be supplied as to the content of such a message, and the hash generated should be completely different if the message’s content is even slightly altered.

4. Collision Resistant

It is not acceptable for two (or more) separate inputs to create the same output (digest). It is important to note that no hash function is absolutely free of collisions: collisions are simply a matter of mathematical probability.

Because the outputs are limited in length, as opposed to the inputs, which can be of unlimited size, the number of possible results is limited, making collisions more likely. This chance, on the other hand, is extremely small, and the purpose of any hash function is to reduce it to the smallest possible value.