How Bitcoin Uses SHA-256

Bitcoin uses SHA-256 in the following ways:

1. Mining (Proof-of-Work):

• Bitcoin miners solve a computational puzzle to add a new block to the blockchain.

• The puzzle involves finding a nonce (random number) such that the hash of the block header is less than a target value (determined by the network difficulty).

• The process:

1. The miner takes the block header (metadata about the block, including the previous block hash, timestamp, and nonce).

2. Runs it through SHA-256 twice (double-SHA-256).

3. Adjusts the nonce and repeats until the hash meets the target condition.

Example:

• Input: Block Header + Nonce

• Output: 00000000000000000abcd... (starts with many zeros, meeting difficulty)

2. Transaction Verification:

• Transactions are hashed using SHA-256 to ensure integrity.

• A transaction’s hash acts as its unique identifier (transaction ID).

• Merkle Trees are used to organize and verify transactions efficiently:

• Each transaction hash is hashed again to form a tree.

• The root of this tree (Merkle Root) is included in the block header.

3. Address Generation:

• Bitcoin addresses are derived using SHA-256 and RIPEMD-160:

• First, the public key is hashed using SHA-256.

• Then, the output is hashed again using RIPEMD-160.

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