Hashing is a general term when we discuss blockchain technology. Hashing refers to the process of transforming and turning input data of various sizes into strings of a fixed size, accomplished by a certain algorithm. Specifically, the Bitcoin hash algorithm is referred to as SHA-256 or 256-bit Secure Hashing Algorithm. This algorithm is a one-way cryptographic function because no one can retrieve the original data through decryption.
Implementing cryptographic hash functions prevent fraudulent transactions, double spending on the blockchain, and allows storing of user passwords. But what is a Bitcoin hash, and what should it do when put into this context? In short, the Bitcoin hash is a unique number that cannot be duplicated according to the algorithm and often used to verify the authenticity of files. In short, when there is a change in the hashed file, the hash will automatically change. And each subsequent hash is linked to the previous one, ensuring consistency across all blocks.
How Hashing Works on the Blockchain
So what is a hashing algorithm in the blockchain, and how does it work? In short, a hashing algorithm takes an infinite number of bits, performs computations, and generates a fixed number of bits. Regardless of the length of the input data, the output is corrected. The original data is called the input, and the result of the final transformation is called the hash. Until now, many hashing algorithms differed only in how they processed the information.
To fully understand what hashing is, understanding the data structure is important. The data structure is a distinct way of storing data which consists of two key elements: pointers and linked lists. Pointers are variables, referring to other variables, thus acting as indicators showing the path to the right location in the blockchain. Moreover, this element will create the address of the next block in the chain. A linked list, on the other hand, functions by creating a sequence of connected nodes with the help of pointers.
Thanks to hashing in the blockchain, each block is assigned an original identifier, which will have irreversible consequences in the blockchain. Blocks are identified by the information included in the block header. It consists of details such as:
- Blockchain version number
- UNIX timestamps
- Hash pointers
- Nonce, which is the value miners need to create blocks
- The hash of Merkle root
All of these elements are needed to create a block. So when a hash occurs on the blockchain, the data is converted into a unique string within a block.
How to Solve Hashes?
Solvinghashes, starts with solving complex math problems that contain data in the block headers. But before miners begin the process, they have to do a trial and error exercise to decide which string to use as the nonce. When miners identify a nonce, they focus on the nonce (string number) associated with the hash content of the previous block. To be considered successful, the new hash must be less than or equal to the target hash. In return, miners get rewarded for adding the block to the blockchain.
Proof of Work Relations in Hashing
Proof of Work (PoW) algorithms are correlated with blockchain hashes because they are used to confirm transactions and generate new blocks to the chain. In the following image, you can see how they are related:
How Does Proof of Work Function?
Decentralization is an important property of blockchains, but potentially vulnerable. If a participant wants to download a copy of the blockchain, how can other users know that the blockchain is correct? Let’s say there are thousands of computers on the network; what prevents them from aiding new users with the data they created together?
That’s when the PoW algorithm kicks in. This mechanism allows the participants of the blockchain network to know whether the information is free or not. Transaction history is everything on the web, where you need to know who spent money and who received it. In the past, achieving full consensus in a decentralized network required a third party. The hash function allows this to happen because it basically provides a unique digital fingerprint of a piece of data.
Proof of Work in the Crypto World
The PoW concept is designed to counter DDoS attacks, which will freeze the system and refuse to process user requests. PoW also rejects spam and effectively protects the entire network. While it’s not an ideal solution to the problem, it’s still a relatively efficient concept.
In the crypto world, PoW protects cryptocurrencies because it supports decentralized networks. A simple example: someone created a digital wallet; it doesn’t sync with the rest of the network. But when connected, the PoW mechanism causes the wallet to change its status to ‘synced’ as it starts accessing the blockchain.
Why is Manipulating the Network Unprofitable for Miners?
Hashes are useful for organizing the system better, but they come at a price. So when miners create a new block for the blockchain, they must provide two hashes to the network:
The hash of all transactions in the block.
A hash that proves that the miner has spent a lot of energy creating the block.
Although the system is in good condition, the compensation for the miners is minimal. Considering the resources spent searching for the hash, it makes data distortion unprofitable. But to do this, miners must operate in a lottery-like system where only one winner gets compensated. Moreover, there is no guarantee of finding the hash.
In addition, if GPU and CPU power is weak, it will take a long time for processes to run. Only computers with expensive equipment can handle the processing power. Even so, these computers can consume a lot of electricity, which makes the whole process unprofitable for miners who find valid hashes for invalid blocks of transactions. In the end, it makes no sense to confirm a “false” block, claim that all transactions are valid and proceed to hash it. Other computers on the network will reject invalid blocks, meaning miners will not receive rewards.
Proof of Transactions
When sending cryptocurrency, a user must confirm the action taken in their wallet, creating proof of transaction in the blockchain. The transactions then fall into another transaction pool and wait for processing, until retrieved by miners.
Transactions of this kind can accumulate in large pools or small, separate local pools. Miners select transactions from the mining pool and process them into new blocks, which include transactions pending confirmation with additional metadata. In the end, each miner forms his own block. And the same transaction can go to different miners’ blocks.
A miner has to ensure that any given transaction meets the block creation execution requirements. If the sender has enough resources the transaction becomes valid and is added to the block. For faster processing, the sender can increase the mining fee. Usually, miners take advantage of higher transaction values by selecting the most profitable deals; therefore, the processing time is lower.
Each transaction has a hash which is stored in a tree-like structure and can be hashed to form a Merkle root. This technology contains information about all transactions occurring in the blockchain.
What is the Cryptographic Hash Function?.
Cryptographic hash functions have built-in properties that make them very useful when used in cryptography.
The result of the hash function is always identical. This characteristic is called deterministic. Regardless of how many times you enter the same message, the result will be the same after the hash function is applied. However, even the slightest change to the input data (for example: writing ‘Article’ instead of ‘article’) will completely change the result.
This feature speeds up calculations because low speed makes the system inefficient.
The preimage resistance feature in hash functions makes it computationally impractical to determine the input of the hash value. Therefore, miners can only compare the results until a match is found.
Hash Unit of Measure
Hashrate refers to the total computing power of the mining equipment involved in cryptocurrency mining. These units of measure include:
- Hash/sec (H/s)
- Kilohash/sec (KH/s)
- Megahash/sec (MH/s)
- Gigahash/sec (GH/s)
- Terahash/sec (TH/s)
- Petahash/sec (PH/s)
- Exahash/sec (EH/s)
As the mining process becomes more complicated, seeing a ‘hash per second’ unit on a modern blockchain network is nearly impossible. Today, higher power devices are needed to solve such problems, and the units start at tens of megahash per second. For example, a processor power of 10 MH/s means it can generate 10 million different number combinations in one second to find a hash that matches all the parameters set by the network.
However, there are different factors to determine the hash rate. Even the choice of a mining algorithm can affect the parameters. It is important to know how other devices react to different algorithms. While some of them provide maximum capacity with networks featuring the SHA algorithm (Bitcoin, Peercoin, etc.), the results may be lower when the same network uses the Script algorithm.
How can Hashed Data be Secured?
Each block, except the Genesis block, contains the hash of the previous block (parent block). Imagine a series of blocks with hashes of the parent block. If the information in any of these blocks is changed, it will affect all other blocks in the chain. However, as the network grew, it became impossible to change the hash across all blocks. Therefore, a hashing process is necessary for the blockchain, ensuring the uniqueness and originality of every element in the system.
Immutable and trustworthy data is one of the blockchain’s core properties, making it valuable and providing enormous potential. As such, the information is always genuine, thus determining the integrity of the blockchain.
How to Measure the Hashrate of the Bitcoin Network?
The hash rate of the Bitcoin network represents the computing power of all nodes around the world, contributing to overall Bitcoin mining. It is difficult to determine the hashrate size because the mining machines that contribute to the network have no identification and communicate to the network only after discovering a block.
However, the hash rate can be estimated daily by comparing blocks found in the last 24 hours with the number 144, which is the expected rate for finding blocks. According to the algorithm, the mining speed should remain the same (600 seconds). In this way, the Bitcoin hash power formula is as follows:
Hashpower = ((block found in 24 hours/expected number of blocks) x success)/600
As the Bitcoin hash rate gets higher, mining parameters become increasingly difficult.It is always adjusted to stay in line with the overall hash job, but difficulty adjustment is essential for safety. So, it’s only natural that the protocol stays away from a mining monopoly. Maintaining the same cryptocurrency mining speed is very important to avoid inflation. Otherwise, miners will generate more Bitcoins faster, and the cryptocurrency will lose value.
How Does Hashing Affect Bitcoin Mining?
Mining remains decentralized because two miners cannot hash the same block. Miners receive transactions over the network in a different order. For this reason, as well as individual preferences regarding commissions, each miner processes blocks slightly differently.
Even though all blocks may have been validated correctly, only one block can enter the blockchain at a time. All miners must continue hashing until they find a number that produces a result that the network agrees to accept as valid when added to their block on the blockchain.
In addition, the network must guarantee the creation of a new block every ten minutes to enforce Bitcoin policies. The network does this by adjusting the mining difficulty every two weeks. Therefore, if a block validates too quickly due to an increase in the number of new miners, the network will increase complexity to reduce inflation.
Because blockchain hashing offers randomness, even the miner with the most powerful computer doesn’t always win. The concept is similar to a gambling game. Even users with the most number of tickets may have more chances of success. However, there is no guarantee that success will always be possible.
Is Hashing Only Done by the Bitcoin Network?
Hashing is a central and integrated part of many different blockchains. Many cryptocurrencies, such as Litecoin or Bitcoin Cash, are supported by mining. Other blockchains still use different mining algorithms. Currently, many hashing algorithms differ only in the way data is processed.
PoW and PoS Energy Consumption
Bitcoins that use PoW consensus are considered to be the most energy-draining. Ethereum, which previously used PoW consensus, transitioned to Proof of Stake consensus to reduce its energy consumption by 99%. By migrating to ETH 2.0, validators will support the network, not miners. Hence, PoS is felt to be more sustainable and leaves a lower environmental carbon footprint. Many Bitcoin miners are turning to renewable energy sources, even waste such as methane gas, to mine Bitcoins, making them more environmentally friendly.
Blockchain technology has become the most influential innovation in the past century that determines future technological developments. Hashing is the cryptography function that powers this technology. It is extremely important to understand what hashing is and the essence of the technology to mine and make money on the blockchain.