Blockchain Basics: Hashing 101

So what even is hashing?

Hashing is one of those core ideas in cryptography and blockchain that sounds more complicated than it actually is. Part of the confusion comes from the terminology. For example, it would be accurate to say:

A hash function hashes data to produce a hash.

But that is just downright confusing. So what does this actually mean?

A hash function takes an input of any size—whether it’s a string of text, a number, or an entire file—and runs it through an algorithm to produce a fixed-length output, known as a hash (also called a message digest).

Think of it like a super-complicated blender—you throw in any data, and it gets scrambled into a completely different-looking string of characters. But unlike a real blender, if you put the exact same input in, you will always get the same output.

At first, this might sound abstract, but once you see it in action, it makes perfect sense. In this post, we'll break down hashing in a way that's more digestable. We'll show how a small change in input completely alters the output, and explain why it’s a critical piece of any blockchain.

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What is Hashing?

A hash function is a mathematical algorithm that takes an input, scrambles it, and produces a fixed-length output called a hash. The key properties of a good hash function are:

• One-way: You cannot reverse-engineer the original input from the hash (message digest).

• Deterministic: The same input always produces the same hash.

• Small input change = completely different output: Even the tiniest difference in input drastically changes the hash.

• Fixed-length output: No matter the size of the input, the hash is always the same length.

• Fast computation: Hash functions are designed to be computed quickly.

• Different from encryption: Hashing has no decryption key—it’s not meant to be reversed.

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The Avalanche Effect: Small Changes, Big Differences

A key property of cryptographic hashes is that a tiny change in input completely changes the output. This is called the avalanche effect.

Let’s take three similar words and hash them using SHA-256:

"cat"  =>  77af778b51abd4a3c51c5ddd97204a9c3ae614ebccb75a606c3b6865aed6744e

"hat"  =>  18e1dd392168f601d0e568612a2bf40e6555c033e033b580ae6627d8aeee1150

"bat"  =>  ca5bcec12f716f44d9745d349cc80422f0d14cbab09329caf533bef7c2d952eb

Even though the inputs are almost identical, their hash outputs are completely different. This makes hash functions extremely useful for detecting even the smallest changes in input data.

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Hashing in Bitcoin: Transaction IDs

Hashing is fundamental to Bitcoin and is used in multiple ways:

• Transaction Hashing creates unique identifiers (TxIDs or fingerprints) for each transaction.
• Merkle Trees organize and efficiently verify transactions.
• Proof of Work (Mining) requires solving SHA-256 puzzles to secure the network.
• Block Hashing links blocks together to form the blockchain.
• Bitcoin Addresses are derived from hashed public keys.

This post will focus on transaction hashing, a core mechanism that ensures Bitcoin’s security and integrity.

In Bitcoin (or any blockchain), every transaction is hashed to create a unique signature. What makes this powerful is that each transaction includes the hash of the previous transaction, forming an unbreakable chain.

Example: How Transaction Hashing Works

Let’s look at a simplified example with fake Bitcoin addresses to see this in action. Our fake Bitcoin transaction will include:

• Sender: bc1qgdjqv0av3q5
• Receiver: bc1ql49ydapnjaf
• Amount: 0.5 BTC
• Timestamp: 1640995200 (Unix time)
• Previous Transaction Hash: 6da0633528deaa0144e7b058315f0b753ec0b945163a72bf96a0d18180f9de0d
• Other Details: (Not shown here for simplicity's sake)

These values are combined and formatted into a structured transaction, then hashed. The simplified idea is:

Sender + Receiver + Amount + Timestamp + Previous Hash
=
bc1qgdjqv0av3q5bc1ql49ydapnjaf0.516409952006da0633528deaa0144e7b058315f0b753ec0b945163a72bf96a0d18180f9de0d

Now, let’s hash it with SHA-256. You can try it yourself using an online SHA-256 calculator here.

We get the result:

dea4b5ec10c7a4c11cbb0a6f85bc1ad4c3cda4d8ecf0a24b4c37509e5c758b19

This transaction hash (TxID) serves as a unique fingerprint for the transaction. Even the smallest change to the transaction details would produce an entirely different hash, making tampering immediately detectable.

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Hashing in Blocks: The Chain in Blockchain

Just like transactions, blocks are also hashed. Every block’s header includes the hash of the previous block, ensuring that the entire blockchain remains immutable. If any transaction or block is altered, its hash changes, breaking the chain—making fraud impossible without re-mining all subsequent blocks.

Hashing is what puts the "chain" in blockchain—a sequence of cryptographically linked blocks that form a tamper-proof ledger... Stretching all the way back to the Genesis block, the first block of transactions ever mined.

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Other Uses for Hashing

Hashing isn’t just for blockchain—it’s everywhere in computer science. From organizing data in software development to securing sensitive information, hashing is a fundamental tool that keeps systems efficient, reliable, and secure.

Beyond blockchain, it plays a crucial role in:

Password Storage

Websites store hashed passwords instead of plaintext ones. When you log in, the password you enter is hashed, and the system compares the result to the stored hash. If they match, access is granted.

This is why your email provider can verify your password but can’t retrieve it if you forget it—because they store only the hash, not the actual password.

File Integrity Checks

Hashes ensure files haven’t been tampered with after download. Since files are just sequences of bits, they can be hashed like any other data.

If even a single bit of a file is altered, its hash completely changes, making tampering instantly detectable.

Digital Signatures

Hashing is used to verify authenticity in digital signatures. When you sign a document online, the system hashes the document’s contents and uses cryptography to create a unique signature.

Later, anyone can verify the signature by checking that the document still produces the same hash, proving it hasn’t been altered.

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Want to Dive Deeper?

If you're a nerd like me and want to explore hashing on a deeper level, here are some great resources:

📌 learn me a bitcoin
📌 Cornell University
📌 IBM Quantum Learning

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Wrapping Up

Hashing is a core building block of cryptography and blockchain. It ensures data integrity, security, and uniqueness. As we’ve seen, it’s what makes the "chain" in blockchain. Hopefully it feels a little less like magic now.

This post is the first of the new Blockchain Basics series. In future posts, we’ll explore UTXOs, consensus mechanisms, Byzantine Fault Tolerance, and more—breaking down the pieces that make Bitcoin and other blockchains tick.