#tradebtc

Hashing uses an algorithm that irreversibly converts an input into a unique output of a fixed length. Bitcoin’s hashing algorithm is SHA256, which means the output – also known as a hash or digest – has 256 binary digits (i.e., zeros and ones).

You can think of hashing as a mathematical technique by which you can convert an input value into an output value very quickly. However, when given an output value, it’s practically impossible to figure out the input value used to get the corresponding result.

One way to conceptualize this is by making a cake. The input is flour, sugar, eggs, etc., and the output is the finished cake. The algorithm is the oven that turns the raw ingredients into the finished product. Once you have the cake, it’s impossible to turn it back into the raw ingredients. It’s also impossible to determine exactly what the raw ingredients were and how much of each was used.

To create a digital signature, the message broadcast to the network first needs to be hashed. Then, the hash needs to be encrypted.

As mentioned above, the type of encryption employed by Bitcoin is known as asymmetric encryption – a form of encryption that utilizes what are known as public and private keys.

Asymmetric encryption works because each person has a public and private key that correspond with one another. While you can use the public and private keys separately to encrypt a message, to decrypt it, you need both. In other words, if you encrypt with a public key, it must be decrypted with a private key and vice versa.

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The private key belongs to one person, and no one else has access to it. In contrast, you can give anyone your public key. So say Alice wants to send Bob a private message. Alice encrypts the message using Bob’s public key that he gave her. Because Bob is the only one with his private key, so he’s the only one who can decrypt it. If Bob wants to send Alice a private message, he encrypts it using her public key, and only she can decrypt it using her private key.

With Bitcoin, the aim isn’t to send a private message – remember, the ledger is public. Nevertheless, asymmetric encryption still ensures that the message was actually sent by the person you think it is and that it hasn’t been tampered with.

So let’s say Alice wants to send Bob one Bitcoin. To do so, she broadcasts two things to the network:

A message (containing the details of the transaction). The transaction is unencrypted and contains the link to previous transactions. It also contains input and output values, which help determine whether there are enough funds for the transaction to be considered valid.

A digital signature (i.e., the hashed message that she’s encrypted with her private key)

Bob then authenticates the transaction by:

Applying the hash algorithm to the message, giving him Hash A.

Decrypting the digital signature Alice created using Alice’s public key. This gives him Hash B.

Since both hashes were derived from the same message, they should be the same. If they are, it proves that nobody tampered with the message. And since Bob was able to decrypt the hashed message using Alice’s public key, and Alice is the only one with access to her private key, it also ensures that the message came from her.