IT Audit Understanding the Benefits of Hash Function in Blockchain from an IT Audit Perspective
23-02-18
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Blockchain is a revolutionary technology that has disrupted many industries. It is a distributed ledger technology that records and stores data in blocks, which are then linked together using cryptography. This makes it virtually impossible to tamper with or alter the data stored on the blockchain. One of the key features of blockchain technology is its use of hash functions. A hash function is a mathematical algorithm that takes input data and produces an output known as a "hash" or "message digest". The hash function ensures that each block in the chain contains unique data and can be used to verify the integrity of any transaction on the blockchain.
In this post, we will explore how hash functions can be beneficial from an IT audit perspective and provide examples to demonstrate their usefulness.
What are Hash Functions?
A hash function is a mathematical algorithm that takes input data and produces an output known as a "hash" or "message digest". The output generated by the hash function is always fixed length regardless of the size of the input data, making it easier to compare two different sets of data quickly and accurately. Furthermore, even if only one bit of information changes in the input, it will result in a completely different output from the hash function. This makes it virtually impossible for someone to tamper with or alter any data stored on the blockchain without being detected.
How are Hash Functions Used in Blockchain?
Hash functions are used extensively in blockchain technology for various purposes such as verifying transactions, linking blocks together, and ensuring security. When a transaction is made on a blockchain network, it must first be verified by miners who use specialized computers to solve complex mathematical puzzles called “proof-of-work” (PoW). Once these puzzles have been solved, they generate hashes which are then compared against previously generated hashes to ensure that no fraudulent activity has taken place. If all checks out, then the transaction will be approved and added to the blockchain as part of a new block. Each block also contains its own unique hash which links it to other blocks within the chain, thus creating an immutable record of all transactions made on the network.
Benefits From an IT Audit Perspective
From an IT audit perspective, one of the biggest benefits provided by hash functions is increased security for digital assets stored on a blockchain network. As mentioned earlier, even if only one bit of information changes in any given transaction or block within a chain, this will result in completely different outputs from its respective hash function which can easily be detected by miners when verifying transactions or linking blocks together. This makes it virtually impossible for anyone to tamper with or alter any data stored on a blockchain without being detected immediately by miners who can then take appropriate action such as rejecting suspicious transactions or invalidating entire blocks if necessary.
Another benefit provided by hash functions from an IT audit perspective is improved traceability for digital assets stored on a blockchain network since each block within a chain contains its own unique hash which links it back to other blocks within said chain thus creating an immutable record of all transactions made on said network over time. This makes it much easier for auditors to trace back any suspicious activity quickly and accurately while also providing them with greater visibility into how digital assets have been used over time thus allowing them to make more informed decisions regarding potential risks associated with said assets going forward.
Finally, the use of hashes helps to reduce storage costs as each block in the chain only needs to store its own unique identifier instead of storing a large amount of redundant information that unnecessarily and significantly increases storage costs over time by storing multiple copies of the same information in multiple locations simultaneously, thereby helping to reduce redundancy costs associated with said redundant information storage requirements that are unnecessarily incurred over time because appropriate optimization measures are not implemented in advance, thereby significantly reducing the overall storage costs associated therewith, thereby increasing the associated cost savings.
Overall, using hashes provides numerous benefits from an IT audit perspective such as improved security for digital assets stored on a blockchain network due to their ability detect any tampering attempts quickly and accurately; improved traceability for digital assets due their ability link blocks together securely; and reduced storage costs due their ability store only necessary information instead large amounts redundant information unnecessarily increasing storage costs significantly over time due lack thereof proper optimization measures implemented beforehand.
