What is SHA-256?

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The SHA (Secure Hash Algorithm) is an algorithm used in Bitcoin and some other cryptocurrency networks to validate the integrity of the information stored in a block.

Similar to most concepts in cryptography, the SHA algorithm was developed during past wars. The cryptographic algorithm was developed by the United States National Security Agency (NSA) and National Institute of Standards and Technology (NIST). 

In 1993 the first SHA protocol, called SHA-0, was introduced. Two years later, a stronger, improved variant was released, the SHA-1. A few years later , SHA-2 was launched, which has four variants according to the number of bits, such as SHA-224, SHA-256, SHA-384 and SHA-512.

Purpose

The purpose of SHA-256 algorithm is to generate an almost-unique, fixed size 256-bit (32-byte) hash based on a standard that secures computer data from unwanted parties. Even if only one symbol is changed in a data set, the algorithm will produce a different hash value. 

The Hash is called a one way function. This makes it sufficient for checking the quality of data and digital signatures in blockchain. It is one of the strongest hash functions available. SHA-256 isn’t more complex to code than SHA-1,but it is more secure than SHA-1.

The significance of the 256 in the name stands for the final hash digest value, i.e. irrespective of the size of plaintext/cleartext, the hash value will always be 256 bits.

SHA-256 and Bitcoin mining

The SHA-256 algorithm ensures that while your transactions are transparent on the blockchain, they’re still anonymous except if someone knows your wallet address. In addition, without SHA-256, miners wouldn’t be able to perform their proof-of-work to mine a block and get rewarded.

In the Bitcoin network, once a miner node has packaged transaction data, it then has to use computational power to try arbitrary variations as fast as to add onto that data so that the output matches the SHA-256 hash.

The mining difficulty adjusts so that the numbers of miners processing transactions don’t greatly affect the rate of Bitcoin being distributed through the block reward.