Hashes are everywhere in blockchain: transaction IDs are hashes, blocks are linked together by hashes, and Bitcoin mining involves constantly calculating hashes. What exactly are they, and why are they so important? This article explains it using as few technical terms as possible.

Coin mentioned in the article: $BTC Current price: 80,754.99 (24h +0.65%).

What is a hash:

A hash function turns data of any length into a fixed-length output. This output is called a hash value, or digest. For example, SHA-256 always produces a 256-bit output, which is 64 characters when written in hexadecimal.

You can think of a hash as a data “fingerprint”: the same data always produces the same fingerprint, but change even a single character and the fingerprint becomes completely different.

What makes a good hash function?

First, it’s one-way: it’s nearly impossible to recover the original data from its hash. Second, it’s collision-resistant: it’s nearly impossible to find two different pieces of data that produce the same hash. Third, its output is unpredictable: you can’t know what the output will be without actually calculating it.

Keep in mind that hashing is not encryption. Encrypted data can be restored using a key; hashing is one-way, so you can’t recover the original content from a hash.

Where is hashing used in blockchain?

Bitcoin uses SHA-256 to calculate block hashes and transaction IDs, and hashes them twice. To generate common P2PKH and P2WPKH addresses, it first applies SHA-256 to the public key, then RIPEMD-160 (Taproot addresses use the public key directly). Ethereum uses Keccak-256, and its addresses are taken from the last 20 bytes of the public key’s Keccak-256 hash.

Each block header records the hash of the previous block. If you change any historical block, its hash changes, and all the blocks that follow no longer match. This is one of the key reasons blockchains are difficult to tamper with. Bitcoin mining involves repeatedly trying different inputs until a hash that meets the difficulty requirement is found.

What does this mean for ordinary users?

To check a transaction, search for its transaction hash in a block explorer—it’s much more reliable than looking at a screenshot. After downloading wallet software, compare its SHA-256 checksum with the one published by the official source to confirm that the installation package hasn’t been tampered with.

Here’s the practical takeaway:

Remember this: a hash is a data fingerprint. It can be shared and compared, but you can’t reverse it to recover the original data. You can share your transaction hash freely, but never share your private key or recovery phrase. There’s no shame in taking it slow—staying in the game matters more than making a big profit once.

Have you ever misunderstood this too?

This is not investment advice. Don’t blindly copy what I do.