What is SHA-256 and how does it work?

Nov 7, 2025 | 7 min read

What is SHA-256?

SHA-256 is a cryptographic hash function that converts data into a fixed, unique sequence of 256 bits. SHA-256, also known as Secure Hash Algorithm 256-bit, is used globally to secure all kinds of data—from passwords to blockchain transactions. It’s part of the SHA-2 family (alongside SHA-224, SHA-512, etc.). This cryptographic security function was developed in 2001 by the National Security Agency (NSA) and has since become widely used in the crypto world. For example, Bitcoin uses SHA-256 to ensure that transactions are authentic and immutable.

It may sound technical, but it’s actually pretty straightforward: you feed SHA-256 some data (for example, a piece of text, a file, or a Bitcoin transaction), and it produces a kind of digital fingerprint. For nearly all practical purposes, every input gives a unique hash, although there’s a tiny chance of a “collision,” where two different inputs produce the same output. But in almost all cases, even the smallest change in a word results in a totally different hash value. This makes it extremely sensitive to changes.

Example:
Finst -> 270312fddfd739dd8cb5e62505f65d8892594665da8b0554a9b01d5ebfd65b30
finst -> ebabf828a572063a5d69bd3487b3a589a9082a4bb3edc6d9c4e3c2c264a6c34b

In the example above, only the letter F was changed from uppercase to lowercase—and as you can see, it results in a completely different hash value.

Key Takeaways

SHA-256 is a cryptographic hash function that converts data into a fixed 256-bit sequence.
The algorithm is one-way: the hash cannot be reversed to retrieve the original input.
Small changes in input result in a completely different hash, ensuring high security.
Bitcoin and other blockchains use SHA-256 to secure and verify transactions via Proof-of-Work.
SHA-256 is also used for password protection and verifying data integrity.

How does a hash function like SHA-256 work?

A hash function like SHA-256 is a mathematical process that turns input data of any length into an output of fixed length. It’s deterministic, meaning the same input always produces the same hash. This makes it a one-way process—there’s no way to convert the hash back to the original data. Any small change creates a completely different output, which allows the function to verify whether inputs match. For instance, when you log in somewhere, the system doesn’t know your actual password—it just checks if the hash matches the stored one.

There are many types of hash functions, but SHA-256 has its own specific technical characteristics. Here’s a simplified explanation of how the SHA-256 hashing process works:

Block division: Because SHA-256 can’t process everything at once, the input is divided into 512-bit blocks (about 64 bytes each). If the last block is too short, it’s padded so all blocks are the same size.
Initial values: Before it starts calculating, SHA-256 uses eight standard initial values. Think of these as starting numbers that ensure consistency in the algorithm.
64 rounds of processing: Each block is processed 64 times using mathematical operations like bit shifts and combinations. You can compare this to shuffling a deck of cards—you want to make the result completely unpredictable.
Linking between blocks: Once a block is done, SHA-256 uses its output to process the next block. This step-by-step linking builds the final result.
Final hash (output): After all blocks are processed, the final value becomes the 256-bit hash—a unique 64-character combination of numbers and letters. In other words, a digital fingerprint of your input.

This entire process happens in less than a second and provides very strong security.

SHA-256 in cryptocurrencies and blockchain

SHA-256 plays a crucial role in Bitcoin and many other blockchains of altcoins.
It’s used to make transactions secure, immutable, and verifiable—without any central authority.

SHA-256 hashes transactions

Every transaction on a blockchain is hashed. This unique hash serves as an ID or digital fingerprint for that transaction. That way, anyone can verify data integrity at any time without seeing the full content.

Proof-of-Work (PoW)

In the Bitcoin mining process (called Proof-of-Work), SHA-256 is used to solve cryptographic puzzles. Thousands of Bitcoin miners continuously adjust small values (nonce and timestamp) and compute the SHA-256 hash millions of times per second.

The first miner to find the correct hash gets to add the new block to the blockchain and earns a Bitcoin reward.

The blockchain

Each block in the blockchain contains the hash of the previous block, creating the chain itself. This allows users all over the world to make transactions without needing a central authority—the trust lies within the system.

Wallet addresses

Public wallet addresses (public keys) are long strings of characters. SHA-256 is part of the process used to hash these public keys when generating Bitcoin wallets. This keeps addresses secure and easy to share.

Why is SHA-256 considered extremely secure?

There are four main properties that make SHA-256 highly secure:

Property	Explanation
One-way function	The hash cannot be reversed back into the original input.
Uniform distribution	Small changes lead to completely different hashes.
Massive possibilities	2²⁵⁶ possible hashes—more than the number of atoms in the universe.
Resistant to attacks	Even modern computers can’t calculate the original data from a hash.

Can quantum computers hack Bitcoin in the future?

There’s a lot of speculation today about whether quantum computers could break the security of cryptocurrencies. These futuristic machines could theoretically perform calculations that current computers could never handle. So, the question arises: is Bitcoin at risk once quantum computers become real?

The short answer: not immediately, but it’s worth keeping an eye on. Some researchers believe quantum computers could one day attack certain parts of Bitcoin, such as its digital signatures (ECDSA).

The SHA-256 hash function itself remains safe for now. Even though a quantum computer could theoretically perform far more calculations, the sheer number of possible hashes keeps it highly secure.

So there’s no reason to panic—quantum computers don’t yet exist at the scale needed to hack Bitcoin. Meanwhile, the Bitcoin community is already developing post-quantum cryptography, a new form of security designed to withstand future quantum attacks.

Why is SHA-256 important?

SHA-256 provides security for three major components of the digital world:

Data protection

SHA-256 hash functions are used to store sensitive information securely. For example, websites don’t store your password—they store its hash. When you log in, your input is hashed again. If the two match, you’re granted access. This way, no one can read your actual password.

Trust in the blockchain

Different blockchains use SHA-256 to ensure transactions are authentic and unchangeable. Each transaction is hashed, and if tampering occurs, it’s immediately visible. As mentioned earlier, Bitcoin miners use SHA-256 in the Proof-of-Work consensus algorithm to validate and add blocks to the chain.

Integrity verification

SHA-256 is also widely used to check whether files, messages, or other data have been altered. This is done simply by comparing hashes—if the hash changes, you know the data has been modified.

Final Thoughts

SHA-256 is one of the main pillars of digital security. Thanks to its strong mathematical structure and one-way design, it ensures that data remains safe, reliable, and immutable. Whether it’s securing passwords, verifying files, or recording blockchain transactions, SHA-256 guarantees that information is authentic and cannot be changed. Because of these properties, it forms the foundation of trust in many modern technologies—from websites to cryptocurrencies. In short, without SHA-256, our digital world would be far less secure.