A Hash is a mathematical function that transforms a block of data into a string of characters. Therefore, it generates unique identifiers, which cannot be reversed. Something that is fundamental for the operation of cryptocurrencies or any other system based on block chains.
Coingosu prepare this guide about the functions of Hash function and why they is important in the world of Block Chain and cryptocurrencies.
What is hashing?
Hash is the name given to the result of a cryptographic operation (Hash function). This result will create an unrepeatable identifier. It is a cryptographic use model that is applied, among other utilities, in block chains.
Hash functions, however, are not a new item that has arrived with cryptocurrencies. In fact, its origin dates back to the 1960s, aimed at checking the correctness of data transmitted over networks.
The progressive use of the Internet and, subsequently, the arrival of block chains, have made these functions even more relevant, and they are currently accepted as industry standards.
How does hashing work?
Hash functions, which determine the creation of the Hash, are generated through mathematical and logical systems and processes. These processes are managed from the computer hardware.
They allow entering data, processing it and obtaining strings with characters (with their own unique lengths and characteristics) as a representation of the data that has been entered. This result cannot be undone from its formation.
Therefore, a Hash can never be deconstructed to obtain the data with which it was formed. It is therefore a unidirectional process that facilitates the creation of unique, unrepeatable information that does not allow access to the original information.
How are hash functions used in cryptocurrencies?
Hash functions have been incorporated into the world of cryptocurrencies practically since its birth, being directly associated with the bases on which it was created, for example, Bitcoin.
Bitcoin is a cryptocurrency, or what is the same, an encrypted digital currency, which is used for exchange, as well as to pay for goods or services (for now only in certain establishments). In addition to serving as a means of payment, Bitcoin is globally used as an investment method. Bitcoin is commonly known as a haven cryptocurrency, that is, it would be something similar to gold but in the form of a cryptocurrency. That is why Bitcoin is limited to 21 million, it is intended to emulate the scarcity of gold.
Historically, Bitcoin is profitable as a long-term investment method. Especially if you don’t know the market enough to trade (buy and sell in short periods of time). It is very difficult to predict the behavior of Bitcoin to know when to buy and sell, which is why there is a strategy called hodl by which inexperienced investors buy and sell in the long term when there are benefits.
Take into account the risk of operating with Bitcoin is very high, due to its condition as a very volatile asset. Values change radically in value, from one moment to another, so our investments in this cryptocurrency can give rise to large profits, but also to losses of a very high value, or even the entirety. For all these reasons it is important to know well how this type of market works, to avoid problems in the short, medium or long term.
Despite the evolution of blockchains, these cryptographic functions remain essential, in order to create security, privacy, and trusted transactions within networks.
An example of these functionalities is the use of Hash functions to create shortened public addresses to be able to operate on cryptocurrency wallets. This is necessary because public keys are long and complex.
The shortening allows to operate safely, without being able to obtain the source data, and shortening the address.