How do Hash and Encryption Helps in Blockchain


The main pillars on which blockchain is working are DLT(Distributed Ledger Technology), mechanism design, and the cryptographic algorithms. The collaborative work of these three technologies brings a secure, peer-to-peer exchange that would eliminate the need for a third party in the transaction of digital information.

What is exactly cryptography?

Cryptography is a protocol that prevents the third party from accessing the information or data of the user. Using this technique secure communication of data is ensured.

Today's cryptography combines many fields and areas of computer science, Physics, Maths and many more. The prefix ‘crypto’ means ‘hidden’ and ‘graphy’ means writing. Basically plaintext which is human-readable data is encrypted with a special encryption algorithm. On applying decryption data is decrypted to plain text.


Key terms

Encryption: The process which helps the data to transform into an unreadable format.

Decryption: This process helps in reversing the encrypted message into its original format.

Cipher: Encryption and decryption performing algorithms with well-defined steps. 

Blockchain uses cryptography in many special ways for example in transaction areas, wallets, network security. Ciphers or crypto algorithms are used to encrypt and decrypt plain text and used mainly among computer and mobile devices to securely transmit information and data.

Public-key cryptography, hashing, and Merkle trees include the Cryptography technology which in turn covers blockchain technology.

Public-Key Cryptography

Asymmetric Cryptography or public-key cryptography uses key pairs - a public key and private key. Private keys are owned and operated by the owner itself and public keys are widely distributed. Keys are generated in pairs means each public key must have a private key. Mostly public-key is used for encrypting messages which will lead securely transfer messages between computers and other devices through the network securely. Whoever owns the public key can encrypt a message, but only those who own a private key are able to decrypt that message. 

Public-key cryptography is used mainly for message encryption between two parties or computers in a secure way. The public key is distributed to anyone and with that public key, they can encrypt a message, once encrypted, the only way to decrypt that message is by using the corresponding private key.

For example, take two users Alice and Bob. Suppose Alice wants to send a message to Bob and in an encrypted way.

Alice encrypted message with Bob’s Public Key

For example: Suppose Alice wants to send a message to Bob and uses an encryption method. It would work like this:

  • Alice uses Bob’s public key to encrypt the message and also add a digital signature with Alice’s private key and send a message to Bob.
  • Bob uses the private key to decrypt the message and also checks authentication with Alice’s public key. 
  • In case anyone tries to access the message in between, they may not be able to read the message, they were only able to see some characters and numbers.

A diagram illustrating this process is shown below:


Public key cryptography is the most prominent blockchain technology which is used in wallets and transactions for more security and reliability. For example, when a user is creating an account in a wallet they are creating key pairs. In a transaction primarily a message is broadcasted that just has information, says an X Cryptocurrency from one wallet and credits X coins into another wallet. Transactions written into ledger and balances get updated.  

Transaction message needs a signature from the private key from the sender wallet to be valid. After anyone can use that wallet’s public key to ensure the digital signature coming from the private key is authentic. This is one of the main role block validators before they are added to any transaction to the blockchain.


Hashing is another fundamental part of the blockchain and it helps to create a highly secure immutable ledger which is the backbone of blockchain. Hashing in simple terms means taking any amount of input or any size and returning a fixed length of different numbers and characters to form a string. A cryptographic hash function can be termed as a special class of hash function with certain properties like,

Irreversible: Hashed data cannot be reversible and it's impossible to determine the original data from output hash.

Deterministic: The result of hashing the data must be the same no matter how many times this hashing process continues.

Collision Resistance: Different data can never have the same output.

Puzzle-friendly:   A hash function should be puzzle friendly, which means that there is no short-cut to find a desired output hash value. The only way to work around it should be by trying out different input data combinations.

Blockchain immutability is created with cryptographic hash by creating a new block that contains the hash of the previous block.  Suppose a blockchain wants to add a new block, say 100th block. The 100th block now has the data from the 99th block in hash format, and the 99th block contains the hash of the 98th block. This means each block contains the data of the previous block and also the data of that block. If one block changed we need to change the data and hash of the entire chain.  Technical wise that is very difficult and impossible.

By changing the hashes backward, every block from 100 to 1 is linked by hashing. A diagram of this architecture is shown below:


There are many hashing algorithms available like SHA-2, MD5, SHA-256, SHA-512. Bitcoin uses SHA-256 algorithm and Ethereum uses keccak256.

Merkle trees.

Merkle Tree is a hash tree which was created using a cryptographic hash function that stores raw data in each node. Here each leaf node is the hash function of the original data and each child node is again hashed and moved to the parent node.

Please click on the link to read more on Merkle Tree



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