What Is a Collision Attack in Cryptocurrency and How Does It Relate to Hash Functions?

A collision attack occurs when an attacker finds two distinct pieces of data that produce the exact same hash output from a hash function. In cryptocurrency, this is dangerous because if a collision is found, an attacker could create a fraudulent transaction that has the same hash as a legitimate one.

This would allow them to potentially alter the blockchain record, for instance, to redirect funds or create counterfeit coins. The security of a cryptocurrency's hash function is defined by its collision resistance; a strong hash function makes finding a collision practically impossible.