If you’re new to the space of crypto, you’re probably wondering how it works. In short, cryptocurrency is coded and powered through ‘cryptography.’
When a cryptocurrency is minted, it never actually materialises. They are a reward for data miners who solve ‘cryptographic puzzles.’ The puzzle is usually guessing a ‘hash’ value; a task that cannot be completed by a human in most scenarios. Instead, computers or mining devices attempt a ‘brute force’ search to determine the hash value. The hash value is encoded through cryptography.
Cryptographic hash functions
Mining typically works through the solving of cryptographic hash functions. They are a special type of function that bear certain properties which make them suitable for cryptography. They are a mathematical algorithm that maps data of an arbitrary size to a bit string of a fixed size.
They are designed so that they can only work one-way, meaning they are impossible to invert. This is where the ‘brute force’ search comes into play. A brute force search is the sole way to attempt to recreate the data input from a cryptographic hash function’s output by trying all possible inputs and hoping a match is produced.
SHA-256
One of the biggest examples of this is the SHA-256 algorithm. SHA stands for ‘Secure Hash Algorithm.’ This one-way hash function converts text of any given length into a string of 256 bits. This makes SHA-256 an incredibly strong encryption algorithm and, as of writing, it has yet to be broken. This is because the number of possible variants that would need to be tried is ridiculously high.
The text that is converted is often referred to as the message, whereas the hash value (output) is dubbed as the message digest. Because there are so many possibilities with one-way encryption, if any change occurs within the input data, it will in turn change the output so extensively it would appear as though the two hash values are uncorrelated.
It is worth noting that SHA-256 isn’t the only algorithm used in the world of crypto. Bitcoin relies heavily on it, but Ethereum relies on its native Ethash, whereas Litecoin uses Scrypt. Although different cryptocurrencies may use different encryption algorithms, cryptography is quintessential for all of them.
The ideal cryptographic hash function has five main properties
- It is deterministic; the same message always results in the same hash
- Quick to compute the hash value for any given message
- It is impossible to generate a message from its hash value except by trying all possible messages
- A small change to a message should change the hash value so drastically that the new hash value appears uncorrelated with the old hash value
- It is impossible to find two different messages with the same hash value
Other applications
Cryptographic hash functions aren’t exclusive to the points listed above. They also have many other information-security applications, most notably in the creation of digital signatures. They can also be used as ordinary hash functions to index data in hash tables, for fingerprinting, to identify duplicate data or unique files, and as another measure to detect accidental data corruption.
Needless to say, cryptography is vital in the world of cryptocurrencies. Without it, successful privacy encryption would be hard to come by. It protects our private data, funds, and much more that would otherwise be at risk.
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Disclaimer: The views and opinions expressed by the author should not be considered as financial advice. We do not give advice on financial products.