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SHA256: The Most Used Hash Function in Cryptocurrencies

SHA256, or Secure Hash Algorithm 256-bit, is a cryptographic hash function that has become a cornerstone of modern digital security.


It plays a crucial role in data integrity, digital signatures, and secure communication protocols. In this article, we will delve into the world of hash functions, explore the history of SHA256, and examine how this algorithm works to maintain digital security.

Understanding Hash Functions

A hash function is a mathematical algorithm that takes an input (or "message") and returns a fixed-size string of bytes. The output is typically a "hash" or "digest" that represents the original data. Hash functions possess several unique properties that make them ideal for various security applications:

  • Deterministic: The same input will always produce the same output, ensuring consistent results. Small changes in the input result in significant changes to the output, making it difficult to predict the output based on a slight alteration of the input.
  • Fast computation: Hash functions can process data quickly, making them suitable for real-time applications.
  • Preimage resistance: It is computationally infeasible to determine the original input from the output hash.
  • Collision resistance: It is highly unlikely for two different inputs to produce the same output hash.

These properties make hash functions a fundamental component of digital security and are widely used in various cryptographic applications.

The History of SHA256

SHA256 is a member of the SHA-2 (Secure Hash Algorithm 2) family, designed by the National Security Agency (NSA) and published by the National Institute of Standards and Technology (NIST) in 2001. It was introduced as a more secure alternative to the earlier SHA-1 hash function, which had shown signs of vulnerability.

SHA-2 is a collection of hash functions with different digest sizes: SHA-224, SHA-256, SHA-384, SHA-512, SHA-512/224, and SHA-512/256. Among these, SHA256 is the most commonly used, thanks to its balance of performance and security.

How SHA256 Works

SHA256 operates on a principle known as the Merkle-Damgård construction, which involves processing input data in blocks and using compression functions to reduce the size of the data. Here's a step-by-step overview of how the algorithm processes data:

Preprocessing: The input message is first padded to ensure that its length is a multiple of 512 bits. This padding involves appending a single '1' bit followed by a series of '0' bits and a 64-bit block representing the length of the original message (in binary).

Initialization: The algorithm initializes eight 32-bit words (termed as initial hash values) derived from the first 32 bits of the fractional parts of the square roots of the first eight prime numbers.

Message processing: The padded message is divided into 512-bit blocks, which are processed one at a time. For each block, the following steps are performed:

  • The 512-bit block is divided into 16 32-bit words.
  • An additional 48 32-bit words are generated using the original 16 words and bitwise operations.
  • A compression function is applied to the words, and the results are combined with the initial hash values to create the intermediate hash for that block.
  • Final hash: After processing all the blocks, the final hash is produced by concatenating the intermediate hashes.

Applications of SHA256

SHA256 plays a vital role in a multitude of digital security applications:

  • Data integrity: By generating a unique hash for a specific file or data set, any subsequent changes to the data will result in a different hash, effectively detecting alterations and ensuring data integrity.
  • Digital signatures: In combination with public-key cryptography, SHA256 allows for secure digital signatures, verifying the authenticity of the sender and the integrity of the message.
  • Secure communication protocols: SHA256 is widely used in protocols such as TLS (Transport Layer Security) and SSL (Secure Sockets Layer) to secure online communications and ensure data privacy.
  • **Password storage: **When storing user passwords, it is common practice to hash them using SHA256 or other secure hash functions to prevent unauthorized access to plaintext passwords, even in the case of a data breach.
  • **Cryptocurrencies: **SHA256 is the proof-of-work algorithm used in Bitcoin mining, requiring miners to solve complex mathematical problems to validate transactions and earn rewards.

SHA256 in Cryptocurrencies: A Technical Deep Dive

In cryptocurrencies like Bitcoin, the Secure Hash Algorithm 256-bit (SHA256) plays a pivotal role in securing the network and maintaining the integrity of the blockchain.

Proof-of-Work (PoW) Algorithm

SHA256 serves as the Proof-of-Work (PoW) algorithm in Bitcoin mining, a consensus mechanism that validates transactions and prevents double-spending. Miners compete to solve complex mathematical problems, which are essentially finding a specific hash value that meets a certain criteria. This process involves the following steps:

  1. Miners collect a set of unconfirmed transactions and create a new block candidate.
  2. The block header is constructed, containing key information such as the previous block's hash, the Merkle root of the transactions, a timestamp, a nonce, and the target difficulty.
  3. Miners then repeatedly perform the SHA256 hash operation on the block header, incrementing the nonce value with each attempt until they find a hash that is lower than or equal to the target difficulty.
  4. Once a valid hash is found, the miner broadcasts the solution to the network, and other nodes verify the hash by performing the same operation.
  5. If the solution is valid, the new block is added to the blockchain, and the miner receives a block reward in the form of newly minted bitcoins and transaction fees.
  6. Double SHA256 for Transaction and Block Hashing: Bitcoin employs a double SHA256 hashing method for both transaction and block hashing to improve security. In this process, the SHA256 hash is calculated twice on the input data, with the output of the first calculation serving as the input for the second calculation. This additional layer of hashing mitigates potential vulnerabilities, such as the length extension attack.

Merkle Trees and Merkle Roots

SHA256 is also utilized in creating Merkle trees, which are binary trees of hashes representing the transactions within a block. Each transaction is hashed with SHA256, and the resulting hashes are paired, hashed again, and so forth, until only one hash remains: the Merkle root. The Merkle root is then included in the block header, which provides a compact and efficient means of verifying the integrity of all transactions within a block.

Hash-based Cryptographic Signatures

In Bitcoin, public-key cryptography is employed to ensure secure transactions. A user's private key is used to generate a digital signature, and the corresponding public key serves as the user's Bitcoin address. When a transaction is created, the sender signs the transaction with their private key and includes the resulting signature and their public key in the transaction data.

SHA256 is involved in the process of generating the digital signature. The transaction data is first hashed using SHA256 to create a digest, which is then signed using the sender's private key. To verify the signature, the recipient hashes the transaction data again and then uses the sender's public key to verify the signature. This ensures the authenticity of the sender and the integrity of the transaction data.


In conclusion, SHA256 is integral to cryptocurrencies like Bitcoin, providing a secure foundation for PoW mining, transaction verification, and data integrity. Its robust design and widespread adoption have contributed to the growth and resilience of decentralized networks, ensuring that digital assets can be exchanged and stored confidently.