Your browser will redirect to litecoin vs bitcoin mining 2015 form requested content shortly. Bitcoin uses the hashcash Proof of Work function as the Bitcoin mining core.
All bitcoin miners whether CPU, GPU, FPGA or ASICs are expending their effort creating hashcash proofs-of-work which act as a vote in the blockchain evolution and validate the blockchain transaction log. The hashcash proof-of-work function was invented in 1997 by Dr. 2p anonymity network, mixmaster anonymous remailer components and other systems. Hashcash was also used by Hal Finney’s bitcoin precursor RPOW as a way to mine coins. In the original 1997 algorithm hashcash used SHA1 because at that time, this was the defacto and NIST recommended hash, and the previous defacto hash MD5 had recently started to show signs of weakness.
SHA1 hash is big enough. Bitcoin is anyway built to 128-bit security because 256-bit ECDSA is used, which also offers 128-bit security. Never the less SHA256 is the correct and more conservative choice because even SHA1 has started to show some weakenesses, though only in birthday collision, not in 2nd-preimage. While hashcash relies on pre-image resistance and so is not vulnerable to birthday attacks, a generic method of hardening SHA1 against the birthday collision attack is to iterate it twice.
A comparable attack on SHA256 does not exist so far, however as the design of SHA256 is similar to SHA1 it is probably defensive for applications to use double SHA256. And this is what bitcoin does, it is not necessary given hashcash reliance on preimage security, but it is a defensive step against future cryptanalytic developments. The attack on SHA1 and in principle other hashes of similar design like SHA256, was also the motivation for the NIST SHA3 design competition which is still ongoing. It seems clear from the SHA1 break, and SHA256 is a similar design, that there was previously a misunderstanding about the security of hash functions against birthday collisions, and SHA3 finalists all aim to fix that issue. The motivation is a small performance gain, with the rationale that some hash-pluggable algorithms do not rely on full-length pre-image resistance. NIST will accept the feedback and SHA3 will retain the full 256-bit pre-image resistance. 2 are vulnerable to pre-image attack so the motivation is missing absent new cryptanalytic developments.