What is the SHA256 Algorithm and how does it secure Bitcoin?

The SHA-256 algorithm is one flavor of SHA-2 (Secure Hash Algorithm 2), which was created by the National Security Agency in 2001 as a successor to SHA-1. SHA-256 is a patented cryptographic hash function that outputs a value that is 256 bits long.

What is hashing? In encryption, data is transformed into a secure format that is unreadable unless the recipient has a key. In its encrypted form, the data may be of unlimited size, often just as long as when unencrypted. In hashing, by contrast, data of arbitrary size is mapped to data of fixed size. For example, a 512-bit string of data would be transformed into a 256-bit string through SHA-256 hashing.

In cryptographic hashing, the hashed data is modified in a way that makes it completely unreadable. It would be virtually impossible to convert the 256-bit hash mentioned above back to its original 512-bit form. So why would you want to create a scrambled message that can’t be recovered? The most common reason is to verify the content of data that must be kept secret. For example, hashing is used to verify the integrity of secure messages and files. The hash code of a secure file can be posted publicly so users who download the file can confirm they have an authentic version without the contents of the file being revealed. Hashes are similarly used to verify digital signatures. Source.

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