What is a Merkle Tree In Blockchain And How Does It Work?

Key takeaways:

• The Merkle tree is a type of binary hash tree that has 3 types of nodes: leaf nodes, non-leaf nodes, and root nodes.
• A Merkle tree is useful for the verification and maintenance of transaction integrity in any decentralized ledger.
• The Merkle tree is seen in Bitcoin as well as Ethereum.

Introduction

Cryptocurrencies are no longer an unknown subject, and neither is blockchain, the technology behind their origin. For any crypto enthusiast, understanding blockchain structures and how they function is the first step to realizing the true nature of cryptos.

While understanding different blockchain structures is where Merkle trees come in. Developed as a concept back in 1980 by Stanford University’s Ralph Merkle, the Merkle tree is commonly used in peer-to-peer (P2P) networks to deal with computing power and memory space requirements. It would not be an exaggeration to say that Merkle trees made blockchain technology a huge success. So let’s dive into the meaning behind the Merkle tree and how it works.

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An overview of Merkle tree

Simply put, a Merkle tree represents the way data is structured purposefully. It allows quick and efficient verification of an extensive amount of information on a blockchain. As mentioned earlier, Ralph Merkle unknowingly created it as a concept in a paper titled “A Certified Digital Signature.” But nobody expected it to become a major component of a decentralized ledger in the future.

The Merkle tree has improved the world of cryptography since its inception. But it became vital for cryptocurrencies after Bitcoin’s mysterious creator utilized it in the foundational code of BTC. After that, Ethereum and other cryptocurrencies also adopted Merkle trees.

In the case of the Bitcoin network, Merkle trees are an efficient component that uses hashes instead of the large-size information file for the verification of data. A Merkle tree employs unique descriptive terminology to describe the relationships between nodes and their levels.

Every single block within the blockchain contains a number of transactions. Storing all those transactions and finding which particular transactions belong to which block can be frustratingly expensive tasks. Additionally, it can negatively impact the efficiency of a blockchain. However, with Merkle trees, all transactions are efficiently arranged, resulting in the use of less data for verification and reduced CPU processing.

Understanding how a Merkle tree works in a blockchain

Here is a simple example to clarify this concept: 

Imagine a data block like the one shown above that has 4 transactions: L1, L2, L3, and L4. To store these transactions, we can implement the concept of a Merkle tree by computing the hash of each transaction. After computation, we receive Hash L1, Hash L2, Hash L3, and Hash L4.

These hashes of each transaction are stored in a node, usually called a leaf node, of the Merkle tree. But our work continues, as we must form non-leaf nodes by pairing leaf nodes. After computation, we get Hash 0 and Hash 1, which are called the parent nodes or non-leaf nodes of the hashes of L1, L2, L3, and L4.

Finally, the hash of Hash 1 and Hash 2 is computed by pairing them together, and we reach the root node, which is the Merkle root. Through this example, we understand that Merkle trees work by hashing child nodes repeatedly until a singular hash remains within the structure.

This way, the Merkle tree tells you exactly whether a transaction has influenced the tree by checking only the root of the tree. Merkle root is stored in the block header, making it tamper-proof and enhancing trust and integrity within a decentralized ledger. It is important to note that Merkle trees use a one-way hash function and would continue until this hashing separated the proof of data from the data.

The necessity of Merkle trees for blockchain

Now that we’ve discussed what a Merkle tree is and how it works, the only thing left to do is understand why it’s important for blockchain. The many advantages of a Merkle tree make it a necessity for blockchain technology and even crypto platforms. Some of these benefits are:

When it comes to transferring, computing, and traversing data, delays are not allowed. This is why many blockchain utilize a Merkle tree to keep the network free of any sort of delays while transferring data. By reducing the amount of memory required to prove the integrity and validity of data, Merkle trees become an essential part of blockchain.

In the Bitcoin blockchain, which is a distributed P2P, there can be inconsistencies or even tampering of data because the same data exists on each computer connected to the P2P network. In this case, the Merkle tree makes it easy for miners to identify any sort of inconsistency or tampering with transactions.

Without the use of this concept, all of the data will need to be transferred all over the network, resulting in a network slowdown, reduced efficiency, and unnecessary expenses. Such a scenario can be avoided with the help of Merkle trees, which allow quick data verification with practical computational power and bandwidth.

Final thoughts

Merkle trees sound like a complicated concept, but they are a crucial component of blockchain technology and cryptocurrencies. Without the existence of this concept, there would be no trustless system used in Bitcoin, Ethereum, and mining.

FAQs:

Q1. Merkle trees were designed to achieve what?
The Merkle tree was designed as a process for verifying data to allow computers to work faster.
Q2. What is the connection between the Merkle tree and Ethereum?
Merkle tree is a type of blockchain structure that is behind not only Ethereum but also Bitcoin and the process of crypto mining. However, Ethereum uses a modified version of the Merkle tree, commonly known as the Merkle Patricia tree.
Q3. How to implement the Merkle tree
To implement Merkle trees, one needs to start with binary trees, in which every non-leaf node is the hash of two child nodes. These leaves could either contain the data or the hash of the data.
Q4. What are some benefits of the Merkle tree?
Being a light structure that increases scalability within the blockchain, the Merkle tree can get rid of unnecessary data and thus improve efficiency. Both miners and users can benefit from the Merkle tree, as it verifies individual parts of blocks, checks transactions using hashes, and also calculates hashes while they receive transactions.