Offering a more secure structure for storing and transferring data, distributed ledgers decentralize data across nodes, removing a single point of failure. The incorruptible nature of blockchain technology modernizes the age-old centralized structure of databases, but it is the cryptography employed by a blockchain that ensures only certain users are able to access certain data.
Leveraged by distributed ledger technology, cryptography is the practice of cloaking data via a mathematical algorithm so that it can travel securely across a public network and between nodes and peers without the content being visible to unauthorized parties. The art of cryptography makes significant usage of a hash function.
A cryptographic hash function secures information by figuratively shredding the data that composes a message, photo, or transaction, into a fixed-length array of representational alphanumeric characters. This output, a string of characters, acts as a unique representation of the original information. After being hashed, the data can’t simply be put back together, the process is one-way.
Within a blockchain, hash functions play several roles, chief among them, chaining blocks of transactions together and providing a mandatory challenge for miners looking to add blocks to the chain.
As blocks are added, miners are rewarded with freshly created cryptocurrency. Without a significant mathematical challenge in place for miners to solve before adding new blocks to the chain the network would be overrun by manipulation and monopoly. Operating under the tenets of decentralization, transparency, and an open network, blockchain is architected to ensure that only significant effort, referred to as Proof-of-Work (PoW), is recognized.
There are many different methods and systems for hashing. Choosing the best hash function for a blockchain is significant because it can contribute to determining growth of adoption, miner suitability, and security. With an insecure hash, PoW becomes a trivial exercise and the economics of the entire system collapse. Cracking a hash function would instantly provide the answer to any cryptographic function using it, allowing the person responsible to add blocks to the chain with an unfair advantage.This could result in a monopolized system, which is in direct contradiction to the decentralized nature of an open blockchain.
For the Equibit blockchain, our priorities dictated a hash function that underwent vigorous testing to ensure no known vulnerabilities and met prevailing industry standards.
Based on the Bitcoin protocol, the Equibit blockchain is designed to best serve the needs of capital markets; authorizing new securities, transacting buy and sell orders, managing Anti-Money Laundering (AML) and Know Your Customer (KYC) compliance, and swiftly processing settlements. As a securities platform, it’s critical that settlements are final and assets secure, thus security was the leading factor in our research. Additionally, in order to effectively scale, providing miners with an industry-recognized hash algorithm was a priority characteristic.
Equibit Group’s research included a comparison of Equihash, Cuckoo Cycle, EtHash, and SHA-3 (also known as Keccak). Our technical team reviewed each hash function based on its method of operation, work independency, Application-Specific Integrated Circuit (ASIC) optimization or resistance, difficulty control, algorithm parallelism (to avoid hashing being executed across multiple processing devices), as well as pros and cons regarding security, speed, and industry use.
As a cryptographic hash standard providing certified security over users’ private keys and high speed, hardware-based encryption, Secure Algorithm-3 (SHA 3) proved to be the best candidate for our use. SHA-3, was released by the National Institute of Standards and Technology (NIST) in 2015 as its standard “next-generation tool for securing the integrity of electronic information.” Developed via a “public competition and vetting process that drew 64 submissions worldwide of proposed hashing algorithms,” SHA-3 is the current Federal Information Processing Standard (FIPS).
As described by the Keccak team, “The SHA-1 and SHA-2 NIST standard hash functions were designed behind closed doors at NSA. The standards were put forward in 1995 and 2001 respectively, without public scrutiny of any significance,” They go on to state that “SHA-3 is the result of an open call of NIST to the cryptographic community for hash function proposals. There was no restriction on who could participate, so submissions were open in the broadest possible sense.” SHA-3 was truly a community-driven development in cryptography.
SHA-3 runs well on ASICs and we see this as a strategic advantage. The Keccak team asserts “Its throughput for a given circuit area is an order of magnitude higher than SHA-2 or any of the SHA-3 finalists. And if you care beyond plain speed, note that it also consumes much less energy per bit. In this sense, Keccak is a green cryptographic primitive.” To the best of our knowledge ASICs for SHA-3 are not yet widely available. Security is the top concern and greater network hashrate means a much harder target for malefactors. Hashes that are memory-intensive, or use other means to diminish the advantage of specialized hardware, make for networks that are easier to overthrow. Thus, it did not make sense to deliberately choose an inefficient hash. SHA-3 offers more security, for less power; a winning combination.
It is also unclear as to whether or not ASICs actually contribute to network centralization. The debate on this point over Bitcoin subsided years ago, and several hashes used by other cryptocurrencies have had ASICs developed without the same issue being raised; Scrypt and X11. Equibit Group’s view is that the token distribution function has more to do with that than anything else. To address this we’ve implemented a special algorithm for calculating the reward of each block.
Finally, SHA-3 appears to have the best resistance to quantum computing based attacks. This is still a subject of much contention but recent research should alleviate these concerns. A team at the University of Waterloo studied how well SHA-2 and SHA-3 were able to resist a pre-image attack using Grover's quantum search algorithm. SHA-3 did very well.
Equibit Group looks forward to welcoming issuers, investors, and miners to the Equibit blockchain with the launch of our software this winter. We invite interested miners to directly contact Chief Blockchain Officer, Nathan Wosnack, at firstname.lastname@example.org for more information on how they can mine the network’s token, EQB.