A hashing algorithm on a blockchain takes an infinite number of bits, puts them through calculations, then outputs a fixed number of bits. No matter the length of the input data, the output is always rectified at a fixed length.
Hashing helps to prevent major issues in the cryptocurrency industry, including double-spending and fraudulent transactions. Double-spending on a blockchain is the risk of when users can spend cryptocurrency twice or more, and fraudulent transactions are untrue or used deceitfully.
Hashing also allows passwords to be safely and securely stored on the blockchain. Since hashing creates a unique non-duplicable number from the algorithm, it can be used as a way to verify a file’s authenticity.
Hashing plays an important role in the Bitcoin system. The specific hash algorithm on Bitcoin is the Secure Hashing Algorithm 256 (SHA-256). This algorithm is a one-way cryptographic function, meaning the original data cannot be retrieved through decryption.
