Secure Hash Algorithm – Overview

Blockchain in Securitization
Blockchain in Securitization: Transforming Traditional Securitization Processes
August 23, 2019
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Secure Hash Algorithm – Overview

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cryptocurrency-mining-equipment-isometric-ethereum-digital-currency-extract_39422-401

Hash functions are indeed one of the most remarkable aspects of cryptography. In simple terms, they are computer codes that takes an input data and converts them into an output data of a fixed length that, though acts as a ‘fingerprint’ for the provided data, does not enable anyone to reconstruct the original text – and hence, the hash can only be proved to be created from that message by a person who knows the original message.

Similarly, in terms of cryptography, a secure hash algorithm (also referred as SHA), is a data security mechanism that works by completely converting the data into an output that barely looks like the original data set, making it almost impossible to trace them back to the original data. These secure encryption techniques are mostly used to meet various cybersecurity challenges and enhance digital security, the most common applications being encryption of passwords and transmission of sensitive data. Over the course of years, various better algorithms have developed, such as SHA 1, 2 and even SHA-3 – with improved encryption practices and better response to hacker attacks.

Secure Hash Algorithms in Blockchain

The remarkable features of SHA make it extremely compatible for application within the blockchain network. Secure hash algorithms are primarily used in distributed ledger technologies to mine and create cryptographic keys (or ‘addresses’).

Let us understand this through an example. In a regular blockchain transaction, the system provides an incentive to every miner to verify operation by a reward mechanism. In order to ensure that the same transaction is not verified twice (called ‘double spending’), the blockchain uses a ‘hash function’. SHA ensures the data entered into the blockchain as a result of the transaction is not tempered with, and hence, the transactions recorded on the ledger are ‘immutable’. This means that any change in the transaction in any manner will produce an entirely different hash, which will, in turn, alter the hashes of other subsequent blocks.

DLT networks also use secure hash algorithms to generate what is known as a ‘private key’ and a ‘public key’. Private keys are, as the name suggests, private addresses to access the cryptocurrency wallets and are known only to the owner – and can be used to effect a transaction executed with the paired public key. A key is usually used to decrypt an encrypted data transferred over the blockchain. The resultant effect is that SHA drastically improves the security and ensures that the network transactions are tamper-proof and confidential.

Typically, all distributed ledger technology networks use SHA-256 which produce a 32-bit hash and is cryptographically very secure. The use of SHA in blockchain frameworks ensures:

  1. It is impossible to produce a similar hash for differing inputs and hence, to alter data on the blockchain. This also makes the blockchain one of the most secure means of transacting.
  2. The authenticity of transactions is maintained (ie. no double-spending occurs)
  3. It is impossible to determine input on the basis of the value of the hash produced. This prevents the hacker from attacking the network.

Thus, secure hash algorithms are an integral part of the DLT framework and have multiple applications – in blockchain mining, creation of addresses, etc.

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