Basics of hash functions: how a digital data fingerprint works

What is it: Hash as the Foundation of Crypto Security

Hashing is a fundamental technology without which modern cryptocurrencies and data protection systems are unthinkable. Essentially, it is the process of transforming any information—(text, file, number, transaction)—into an encrypted string of fixed length—a hash code.

Imagine a digital fingerprint: unique, non-reproducible, and serving as an identifier. But a hash is not biometric data; it is a mathematical function. For example, the phrase “cryptocurrency” processed through the SHA-256 algorithm will turn into a string like: 7d4c8e9a2b1f5c3e6a9d2b1c4e7f8a3b5c6d7e8. Add even one character— and the resulting code will be completely different.

How it works: One-Way Process

The key characteristic of a hash function is its one-wayness. This means that it is impossible to recover the original data from the hash. This is not encryption, which uses a decryption key, but an irreversible transformation.

Main properties of a reliable hash function:

• Deterministic: the same input always produces the same output
• Fast: computation occurs within milliseconds, even for large data volumes
• Sensitive: the slightest change in input radically alters the result
• Collision-resistant: the probability that two different inputs produce the same hash is close to zero

Popular Algorithms and Their Status in 2025

MD5 — fast but outdated. Currently considered compromised and suitable only for non-critical tasks.

SHA-1 — used for a decade, but officially phased out since 2017 due to discovered vulnerabilities.

SHA-256 — part of the SHA-2 family, underpinning Bitcoin and Ethereum. Remains the industry standard.

SHA-3 — the newest standard since 2015, gaining popularity due to increased resistance to future attacks.

The Role of Hashing in Blockchain

Blockchain is a chain of blocks, each containing data, the hash of the current state, and the hash of the previous block. This interconnectedness creates an unbreakable sequence.

Attempting to alter data in an early block will change its hash, which automatically breaks all subsequent links. The chain “breaks,” and the network detects this immediately.

For example:

• Block 1: contains a transaction, hash = abc123
• Block 2: contains its data + hash of Block 1, new hash = xyz789
• If you change Block 1, its hash will change, and Block 2 will no longer be linked to it

This makes blockchain resistant to tampering.

Application in Crypto Transactions

When you send cryptocurrency:

1. Transaction data (sender address, receiver address, amount) are hashed
2. The hash is signed with your private key, creating a digital signature
3. The network verifies the signature, confirming the authenticity of the transaction

This guarantees that no one can forge the transaction or impersonate you.

Mining and Proof-of-Work

In networks like Bitcoin, miners solve a complex problem:

• Take the block data and add a random number (nonce)
• Hash the resulting combination
• Search for a hash that meets a certain criterion (for example, starts with four zeros)
• This requires a huge number of attempts, ensuring computational difficulty

This mechanism protects the network from attacks and spam.

Hashing in Everyday Life

File integrity verification

When downloading software or updates, developers publish the file’s hash. You hash the downloaded file yourself and compare the results. If they match — the file was not corrupted or tampered with.

Password storage

Your password during registration is not stored in plain text. Instead, its hash is saved. When you log in, the system hashes the entered password and compares it to the stored value. Even if the database is hacked, attackers only get useless hashes.

Digital signatures

Hashing underpins the mechanism of signatures that confirm authorship and integrity of documents and financial transactions.

Current Trends in 2025

SHA-3 is gaining influence thanks to improved cryptographic resilience.

Quantum threats are becoming a reality. The development of quantum computers could compromise current algorithms, so the cryptography community is developing quantum-resistant alternatives.

Energy efficiency — a new focus. The industry is seeking hash functions that require less electricity, especially for large-scale mining.

Limitations and Challenges

Despite their reliability, hash functions have weak points:

• Collisions: theoretically possible, though practically excluded for modern algorithms
• Obsolescence: old functions (MD5, SHA-1) are already compromised
• Dependence on computational resources: large-scale application requires significant power

Questions and Answers

What is a hash in cryptography?
It is a unique code obtained by applying a mathematical function to data. It serves to verify integrity and authenticity.

Why can’t a hash function be hacked?
Mathematically, it is impossible to reverse the process (recover original data from the hash) for well-designed algorithms. Old functions may be vulnerable to collisions but not to inversion.

How is it used in security systems?
For password protection, data integrity verification, digital signatures, and in blockchain to create an unbreakable chain of blocks.

Conclusion

Hashing is not just a technical detail but a cornerstone of trust in the cryptocurrency ecosystem. Understanding how hash functions work helps to grasp the mechanics of blockchain, transaction security, and personal data protection. As technology evolves and new threats emerge, this field will develop, but the fundamental principles will remain unchanged.