Hashing in cryptocurrencies: a technology that ensures blockchain security

Hashing is a fundamental technology underlying blockchain and cryptocurrencies. This technology plays a key role in ensuring the security, integrity, and functionality of the entire crypto industry. In this article, we will explore what hashing is, how hash functions work, and why they are critically important for the modern digital economy in 2025.

What is hashing: basics and principles of operation

Hashing is the process of transforming data of any volume, such as text, file, or transaction, into a fixed-length string of characters using a special algorithm. The result of this transformation is called a hash or hash value and appears as a sequence of characters, for example: 5f4dcc3b5aa765d61d8327deb882cf99.

Key characteristics of hashing:

• Irreversibility: it is impossible to restore the original data from the hash
• Determinism: identical inputs always produce the same hash
• Avalanche effect: even a minimal change in the input data completely alters the resulting hash
• Fixed length: regardless of the volume of the original data, the hash has a constant length

Hashing can be compared to a digital fingerprint: each set of data has a unique "print" that allows for quick and reliable identification of the data without revealing its contents.

Hashing Algorithms and Their Application in Cryptocurrencies

Hash functions are mathematical algorithms that transform input data into a hash. Various algorithms are used in the modern crypto industry:

1. SHA-256 ( Secure Hash Algorithm 256-bit ) — used in Bitcoin and many other cryptocurrencies. It produces a 256-bit ( 64-character hexadecimal ) hash value.
2. Ethash — the algorithm used in Ethereum before the transition to Proof of Stake.
3. SHA-3 — a newer and more secure version of the SHA algorithm, gradually gaining popularity.
4. Scrypt — used in Litecoin and some other cryptocurrencies, requires more memory but less computational power.

( Example of hash function operation

Let's consider the operation of the SHA-256 hash function with a simple example:

Input Data: "Gate Exchange" Hash )SHA-256###: a1c22e345df87b11c56d9837354f32dc89855d96a34568e4532c45eb1562db14

If you change the input data by just one character:

Input data: "Gate exchange" Hash (SHA-256): f72826713a01881404f34975447bd6edcb8de40b191dc57097ebf4f5417a554d

As you can see, even a small change ( in this case — one uppercase letter ) completely changes the hash.

The Role of Hashing in Blockchain and Cryptocurrencies

( Blockchain structure and hash

The blockchain consists of a chain of blocks, each of which contains:

• Data )transaction###
• Hash of the current block
• Hash of the previous block

This structure creates an unbreakable link between blocks. If someone tries to change the information in one block, its hash will change, which will invalidate all subsequent blocks. This ensures the immutability of data in the blockchain.

( Transaction protection and digital signatures

When sending cryptocurrency:

1. The transaction data is hashed.
2. The hash is signed with the sender's private key, creating a digital signature.
3. The signature is verified by the network using the sender's public key.

This mechanism ensures that only the owner of the private key can send funds from their address, and the transaction cannot be altered after signing.

) Mining and Proof-of-Work

In cryptocurrencies that use the Proof-of-Work consensus mechanism, such as Bitcoin###, hashing is the foundation of the mining process:

1. Miners gather transactions into a block
2. A random number ###nonce( is added to the block data.
3. The obtained combination is hashed
4. The goal is to find a nonce value such that the hash meets certain criteria, for example, starting with a specific number of zeros.
5. Searching for such a value requires enormous computational power, which protects the network from attacks.

Practical Application of Hashing in Crypto-Economics

) Transaction verification on cryptocurrency exchanges

When you make a transaction on a cryptocurrency exchange, hashing is used at multiple levels:

• Transaction Identification: each transaction receives a unique identifier (hash)
• Block verification: exchanges check block hashes to confirm transactions
• Multi-layered security: hashing is used in two-factor authentication and API protection

Major exchanges process millions of transactions daily, and hash functions enable this to be done quickly and securely.

( Hashing in cryptocurrency wallets

Cryptocurrency wallets use hashing for:

• Generating addresses from public keys
• Creating hierarchically deterministic )HD### wallets
• Software integrity checks

( Smart contracts and hash

In blockchains with smart contract support, such as Ethereum, hashing is used for:

• Generating unique contract identifiers
• Data storage optimizations )Merkle trees###
• Protection of contract execution logic

Advantages and Limitations of Hash Functions in 2025

( Advantages

• High processing speed: modern hash functions process data in milliseconds
• Cryptographic resilience: SHA-256 and SHA-3 algorithms are considered cryptographically secure.
• Versatility of application: from blockchain to password protection and file integrity
• Verification Efficiency: hash verification requires minimal resources

) Limitations and Challenges

• Theoretical possibility of collisions: different input data can produce the same hash
• Algorithm Obsolescence: MD5 and SHA-1 are already considered insecure.
• Quantum threat: with the development of quantum computers, existing hash functions may become vulnerable.
• Energy Costs: Proof-of-Work requires significant computational resources.

Modern Hashing Trends in the Crypto Industry

As of September 2025, several key trends can be identified:

• Growth of SHA-3 popularity: a newer and more secure standard is gradually being adopted in crypto projects
• Post-quantum hash functions: algorithms are being developed that are resistant to attacks from quantum computers
• Energy-efficient algorithms: new approaches reduce energy consumption without compromising security.
• Integration with ZK-proof: a combination of hash with zero-knowledge proofs to enhance privacy

Frequently Asked Questions

Can a hash function be hacked?

Modern cryptographic hash functions (SHA-256, SHA-3) are practically impossible to break, provided they are implemented correctly. However, older algorithms ###MD5, SHA-1### have known vulnerabilities.

How to check the integrity of a file using a hash?

To check the integrity of the file, you need to:

1. Obtain the official hash of the file from the source
2. Calculate the hash of the downloaded file using the same algorithm.
3. Compare the obtained values — they should match.

( What is the difference between hashing and encryption?

The main difference: encryption is reversible ) encrypted data can be decrypted with the key (, while hashing is not ) it is impossible to obtain the original data from the hash ###.

How does hashing protect passwords?

When registering on the platform, the password is hashed and only the hash is stored in the database. Upon login, the entered password is also hashed, and the hash is compared with the stored one. Even if the database is compromised, attackers will not be able to learn the original passwords.

Conclusion

Hashing is a fundamental technology that ensures the security and functionality of blockchains and cryptocurrencies. From protecting transactions to ensuring data immutability, hash functions are an integral part of the crypto ecosystem. Understanding the principles of hashing helps to appreciate why blockchain technologies possess such a high degree of security and how trust is established in decentralized systems.

With the development of technologies and the growth of computing power, hashing algorithms continue to evolve, adapting to new challenges and ensuring the security of digital assets in the ever-changing world of the crypto industry.