Algorithm (cryptocurrency)

Elizabeth Wright
| Editor:
March 8, 2023
1 min read

An algorithm can be described as a set of steps defining a particular pattern or a course of action. In other words, it is a step by step method of solving a problem commonly used for computer and mathematical operations. In mathematics and computer science, algorithms are unambiguous specifications for performing calculations, data processing, automated reasoning, and other tasks.

The algorithm can also be designed to carry out any simple to complex operations like manipulation of data in various ways, inserting a new data item, searching for a particular item or place through routing, and even decision making.

A cryptographic algorithm is the means of altering data from a readable form (also known as plaintext) to a protected form (also known as ciphertext) and back to the readable form. Changing plaintext to ciphertext is known as encryption, whereas changing ciphertext to plaintext is known as decryption. There are several ways of classifying cryptographic algorithms. They can be categorized based on the number of keys that are employed for encryption and decryption, and further defined by their application and use.

The three types of cryptographic algorithms are secret key, public key, and hash function. The use of these three cryptographic algorithms helps secure communication on the blockchain network. Every algorithm is built by fixed beginning and ending signs, performing outputs according to the inputs and to the pre-existing steps.

Multiple algorithms can be combined to perform complicated tasks, but higher complexity demands higher computational resources and power.

Taking Bitcoin as an example, BTC makes heavy use of the cryptographic hash functions SHA256, which stands for Secure Hash Algorithm 256-bit. Its original Proof of Work (PoW) consensus algorithm in a blockchain, which is used to confirm transactions and produce new blocks to the chain. With PoW in Bitcoin and in general, miners compete against each to complete transactions on the network and get rewarded.

All in all, the algorithm is an essential component in the process of mining that verifies and validates transactions while securing the network and soothing its functioning as calculated.

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