SHA-256 in Blockchain: An In-Depth Technical Analysis

What is SHA-256?

SHA-256 (Secure Hashing Algorithm) is a prominent cryptographic hashing algorithm developed by the United States National Security Agency. The primary function of SHA-256 is to transform random data sets into fixed-length values that serve as unique identifiers for this data.

The resulting hash value is compared with duplicates of the original data, which cannot be extracted backward. The algorithm is widely implemented in various applications and services related to information security. Additionally, it serves as a key technology for cryptocurrency mining operations.

SHA-256 belongs to the SHA-2 family of encryption algorithms, which were developed based on the SHA-1 algorithm first created in 1995 for civilian use. The SHA-2 algorithm itself was developed by the NSA in spring 2002. Within three years, the NSA released a patent for using SHA technology in civilian projects.

In 2012, the National Institute of Standards and Technology created an updated version of the algorithm: SHA-3. Eventually, this new algorithm will replace both the current main algorithm SHA-2 and the outdated but still used SHA-1.

How SHA-256 Works

A hash sum is not a data encryption technology in the classical sense, which explains the impossibility of decrypting data in reverse. It's a one-way encryption for any amount of data. All SHA algorithms are based on the Merkle-Damgård method: data is divided into uniform groups, each of which passes through a one-way compression function. As a result, the data length decreases.

This method has two significant advantages:

• High encryption speed with virtually impossible decryption without keys
• Minimal risk of collisions (identical images)

Applications Beyond Cryptocurrency

Every internet user, knowingly or not, interacts with SHA-256 daily: the SSL security certificate that protects every website includes the SHA-256 algorithm. This is necessary for establishing and authenticating secure connections with websites.

Advantages of SHA-256

SHA-256 is the most widespread mining algorithm among all others. It has proven itself as a hack-resistant (with rare exceptions) and efficient algorithm for both mining tasks and other purposes. The algorithm provides exceptional security through its complex process of transforming input data into encrypted hashes.

Limitations of SHA-256

The main disadvantage of SHA-256 is its susceptibility to mining centralization: owners of the largest computing powers receive a larger share of cryptocurrency, which excludes one of the fundamental principles of cryptocurrencies - decentralization.

After large investors began investing in computing power for industrial Bitcoin mining, mining difficulty increased multiple times and began to require exceptional computing power. This drawback has been addressed in other protocols that are more modern and "tailored" for use in cryptocurrency mining, such as Scrypt. Despite the fact that today SHA-256 occupies a large part of the cryptocurrency market, it will weaken its influence in favor of more protected and advanced protocols.

After some time, SHA-1 algorithms ceased to provide the necessary level of reliability due to the probable occurrence of collisions. SHA-256, like SHA-512, is better protected from this disadvantage, but the probability of occurrence is still present.

Mining with SHA-256

Mining on SHA-256, like on any other algorithm, is the process of solving complex cryptographic tasks generated by mining software based on data from previous blocks.

Mining using the SHA-256 function can be done in three ways:

• CPU (central processor)
• GPU (graphics processor)
• Specialized processor: ASIC

In mining, the hash sum is used as an identifier for existing blocks and to create new ones based on previous ones. The mining process is displayed in the interface as "accepted f33ae3bc9...", where f33ae3bc9 is the hash sum, part of the data intended for decryption. The main block consists of a huge number of similar hash sums.

Thus, mining with the SHA-256 algorithm represents an incessant selection of the correct hash sum value, sorting through numbers to create a new block. The greater your computing power, the more chances you have of getting the right block: the speed of sorting through different hash sums depends on your hardware capabilities.

Given that Bitcoin is built on the SHA-256 algorithm, extremely large computing power is required for competitive mining. This is because for Bitcoin mining, the production of ASICs - application-specific integrated circuits - has been well-established for quite some time. ASICs, which have varied reception in the community, allow mining Bitcoins and other cryptocurrencies on the SHA-256 algorithm much faster, more efficiently, and more cheaply.

Cryptocurrencies Using SHA-256 Algorithm

SHA-256 is a classic algorithm for tokens: the main cryptocurrency - Bitcoin - is built on it. Accordingly, Bitcoin forks also use this algorithm: Bitcoin Cash, Bitcoin Gold, Diamond.

Besides these, SHA-256 is also used in:

• Steemit
• DigiByte
• PeerCoin
• NameCoin
• TeckCoin
• Ocoin
• Zetacoin
• EmerCoin

The SHA-256 algorithm is also used as a subroutine in the Litecoin cryptocurrency, while the main mining algorithm there is Scrypt.

Security Implications for Digital Assets

The security provided by SHA-256 is crucial for maintaining blockchain integrity. The algorithm's resistance to preimage attacks (finding input from output) makes it highly valuable for protecting digital assets on various platforms. Professional traders and investors on major exchanges often consider the underlying hash algorithm when evaluating a cryptocurrency's security foundation.

When examining blockchain security, the hash function serves as the primary mechanism ensuring data immutability. Any attempt to alter transaction data would require recalculating all subsequent blocks - a computationally impossible task without controlling the majority of the network's processing power.