Executive Summary, Or How To Avoid Reading This Article
There is much angst over the Shattered attack against SHA1. If you are concerned about this and its implications for Fossil, simply upgrade to Fossil 2.0 or later and the problem will go away. Everything will continue to work as before. All of your legacy repositories will continue to work and all of your old check-ins will still have the same name. Your workflow will be unchanged.
But if you are curious and want a deeper understanding of what is going on, read on...
The first snapshot-based distributed version control system was Monotone. Many of the ideas behind the design of Fossil were copied from Monotone, including the use of a SHA1 hash to assign names to artifacts. Git and Mercurial did the same thing.
The SHA1 hash algorithm is used only to create names for artifacts in Fossil (and in Git, Mercurial, and Monotone). It is not used for security. Nevertheless, when the Shattered attack found two different PDF files with the same SHA1 hash, many users learned that "SHA1 is broken". They see that Fossil (and Git, Mercurial, and Monotone) use SHA1 and they therefore conclude that "Fossil is broken". This is not true, but it is a public relations problem. So the decision was made to migrate Fossil away from SHA1.
This article describes how that migration is occurring.
Use Of Hardened SHA1
In Fossil version 2.0 (2017-03-03), the internal SHA1 implementation was changed from a generic FIPS PUB 180-4 SHA1 implementation to a "Hardened SHA1"  .
The Hardened SHA1 implement automatically detects when the artifact being hashed is specifically designed to exploit the known weaknesses in the SHA1 algorithm, and when it detects such an attack it changes the hash algorithm (by increasing the number of rounds in the compression function) to make the algorithm secure again. If the attack detection gets a false possible, that means that Hardened SHA1 will get a different answer than the standard FIPS PUB 180-4 SHA1, but the creators of Hardened SHA1 (see the second paper ) report that the probability of a false positive is vanishingly small - less than 1 false positive out of 1027 hashes.
Hardened SHA1 is slower (and a lot bigger) but Fossil does not do that much hashing, so performance is not really an issue.
All versions of Fossil moving forward will use Hardened SHA1. So if someone says "SHA1 is broken, and Fossil uses SHA1, therefore Fossil is broken", you can rebut the argument by pointing out that Fossil uses Hardened SHA1 not generic SHA1 and Hardened SHA1 is not broken.
Support For SHA3-256
Prior to Fossil version 2.0 (2017-03-03), all artifacts in all Fossil repositories were named by only a SHA1 hash. Version 2.0 extended the Fossil file format to allow artifacts to be named by either SHA1 or SHA3-256 hashes. (SHA3-256 is the only variant of SHA3 that Fossil uses for artifact naming, so for the remainder of this article it will be called simply "SHA3". Similarly, "Hardened SHA1" will shortened to "SHA1" in the sequel.)
Other than permitting the use of SHA3 in addition to SHA1, there were no file format changes in Fossil version 2.0 relative to the previous version 1.37. Both Fossil 2.0 and Fossil 1.37 read and write all the same repositories and sync with one another, as long as none of the repositories contain artifacts named using SHA3. If a repository does contain artifacts named using SHA3, Fossil 1.37 will not know how to interpret those artifacts and will generate various warnings and errors.
How Fossil Decides Which Hash Algorithm To Use
If newer versions of Fossil are able to use either SHA1 or SHA3 to name artifacts, which hash algorithm is actually used? That question is answered by the "hash policy". These are the supported hash policies:
|Name all new artifacts using the (Hardened) SHA1 hash algorithm.|
|auto||Name new artifacts using the SHA1 hash algorithm. But if any artifacts are encountered which are already named using SHA3, then automatically switch the hash policy to "sha3"|
|sha3||Name new artifacts using the SHA3 hash algorithm if the artifact does not already have a SHA1 name. If the artifact already has a SHA1 name, then continue to use the older SHA1 name. Use SHA3 for new artifacts that have never before been encountered.|
|sha3-only||Name new artifacts using the SHA3 hash algorithm even if the artifact already has a SHA1 name. In other words, force the use of SHA3. This can cause some artifacts to be added to the respository twice, once under their SHA1 name and again under their SHA3 name. But delta compression will prevent that from causing repository size problems.|
|shun-sha1||Like "sha3-only" but at this level do not accept a push of SHA1-named artifacts. If another Fossil instance tries to push a SHA1-named artifact, that artifact is discarded and ignored.|
For Fossil 2.0, and obviously also for Fossil 1.37 and before, the only hash policy supported was "sha1". All new artifacts were named using their SHA1 hash. Even though Fossil 2.0 was capable of understanding SHA3 hashes, it never actually generates any SHA3 hashes.
Beginning with Fossil 2.1, the default hash policy for legacy repositories changed to "auto". That means Fossil 2.1 will continue to generate only SHA1 hashes until it encounters one artifact with a SHA3 hash. Once a single SHA3 hash is seen, Fossil automatically switches to "sha3" mode and thereafter generates only SHA3 hashes.
When a new repository is created by cloning, the hash policy is copied from the parent.
For new repositories created using the fossil new command the default hash policy is "sha3". That means new repositories will normally hold nothing except SHA3 hashes. The hash policy for new repositories can be overridden using the "--sha1" option to the "fossil new" command.
Even after upgrading to Fossil 2.1, Fossil will continue to use nothing but SHA1 hashes on legacy repositories, thus preserving complete compatibility with Fossil 1.37 and before. If you want Fossil to go ahead and start using SHA3 hashes, change the hash policy to "sha3" using a command like this:
fossil hash-policy sha3
The next check-in will use a SHA3 hash. And when that check-in is pushed to colleagues, their copies of Fossil will see the new SHA3-named artifact and automatically convert to SHA3 as well.
Of course, if some members of your team stubbornly refuse to upgrade past Fossil 1.37, you should avoid changing the hash policy and creating artifacts with SHA3 names, because once you do that your recalcitrant coworkers will no longer be able to collaborate.
A Pure SHA3 Future
At some point in the future, years from now, after everybody has finally upgraded to Fossil 2.0 or later, the default hash policy will probably change to "sha3", or maybe even "shun-sha1". By the time that happens, you will probably already be using SHA3 on all your projects and so you are unlikely to notice.