Topics Blockchain
Bybit Learn
Bybit Learn
Intermediate
Jul 30, 2022

What Is a Merkle Tree & What Is Its Role in Blockchain?

Cryptocurrencies and blockchain technology are more popular than ever, which is why every crypto investor should have a strong understanding of the technologies that power blockchain platforms. 

A structure known as the Merkle tree is essential in verifying and maintaining transaction integrity for any transaction that's housed in a decentralized ledger. Over the past five years, Merkle trees have been widely adopted across platforms such as Bitcoin and Ethereum. The following guide tells you all you need to know about Merkle trees and their role in blockchains.

What Is a Merkle Tree?

A Merkle tree is a type of structure that can be used to quickly verify data integrity in a set. This structure comprises mainly hash functions, which are used extensively in blockchain technology.

Also known as a hash tree, the Merkle tree was first developed as a concept by Ralph Merkle in the 1980s. Merkle trees are often used with peer-to-peer (P2P) networks because of the need to have information shared and independently validated. When looking specifically at the Bitcoin network, these trees are used to verify data in an efficient manner. This is made possible by the inclusion of hashes to display information, as opposed to a complete information file.

Merkle Tree Structure

To better understand Merkle trees, let’s look at how they’re structured. Blockchain technology consists of thousands of separate blocks, each of which can store data for thousands of different transactions. Because of how many transactions need to be recorded on a single block, dealing with computing power and memory space needs can be challenging.

Merkle trees allow transactions to be verified without using much data at all, which helps to lower CPU processing while also facilitating enhanced security. When looking at the structure of a Merkle tree, all transactions are grouped together in pairs. Each pair has a computed hash that's stored directly in the parent node. These nodes are also grouped into pairs, after which their hash is stored on the next level up. This process continues until reaching the root of the Merkle tree.

The three node types that can be found in a Merkle tree include:

  • Leaf node — Consists of hash values for transaction data. Every transaction that's located in a block consists of hashed data. The hash value is then stored in leaf nodes.

  • Non-leaf node — Made up of hash values of their children. These are essentially intermediate hash values that are used until the process reaches the tree root.

  • Root node — The root of a Merkle tree is stored directly in the block header.

A Merkle tree is binary, which means that the total number of different leaf nodes must be even in order for the tree to be properly constructed. When an odd number of leaf nodes exists, the previous hash will be duplicated to provide an even number of nodes.

Origins of the Merkle Tree

As mentioned previously, the Merkle tree was first developed in the 1980s by Ralph Merkle, a computer scientist who has spent years working on public key cryptography. Even though most of the work surrounding the Merkle tree was done in the 1980s, the concept of hash trees was first patented by Merkle in 1979.

What Is a Merkle Root?

Among the most important components of a Merkle tree is the Merkle root, which is a mathematical technique that confirms facts and data surrounding the Merkle tree in question. When used for cryptocurrencies, the Merkle root makes sure that data blocks are unaltered, undamaged and whole.

How Does a Merkle Tree Work?

A Merkle tree is essentially designed to break large pieces of data into considerably smaller chunks, which ensures that all the transactions can be verified in a timely manner. The tree summarizes every transaction by creating a small fingerprint of a specific set of transactions, which makes it easier for users to verify the availability of transactions in a block.

Merkle trees are formed by hashing different pairs of nodes until just one hash remains, which is referred to as the Merkle root. These trees are built from the bottom up, with each individual transaction consisting of hashes. Every leaf node is a singular hash of data. As for non-leaf nodes, these are hashes of previous hashes.

Let's say that a Merkle tree consists of four transactions which are labeled with the letters W, X, Y and Z. Each transaction is hashed before the hash is stored directly on the leaf node. When this occurs, hash W, X, Y, and Z are created. Any consecutive pair of leaf nodes will then be summarized in a parent node via the hashing of hash W and hash X, which results in hash WX. If hash Y and hash Z are hashed together, hash YZ is created. Both of these hashes are hashed once more in order to create the Merkle root.

This process can be used with extensive data sets. The Merkle root is responsible for summarizing the data that's present in specific transactions, all of which is stored directly in the block header. This technique results in data integrity being properly maintained. In the event that one detail within the transaction is changed at some point, the Merkle root will automatically change alongside it.

Benefits of a Merkle Tree

There are many benefits for blockchain technology and cryptocurrency platforms when using a Merkle tree to verify transactions, which include everything from efficient verification to easy tampering detection.

Efficient Data Verification Process

It's easy for transaction integrity to be verified in practically no time at all. Because of how the data is structured, very little memory needs to be used during the verification process.

Detection of Any Tampering

The hash structure makes it easy for miners to identify if tampering has occurred with transactions. Every transaction is stored within a Merkle tree as a hash. If the details of a single transaction are changed, those changes will progress into the upper levels of the tree before finally reaching the Merkle root. The Merkle root that's displayed in the header can then be compared to the Merkle root present in the data, so tampering can quickly be detected.

No Delays

Transferring data throughout the network can be done without any delays by using a Merkle tree.

Why Are Merkle Trees Important in Blockchains?

Merkle trees have proven to be essential for blockchain technology because they facilitate quick and easy verification in a manner that's not possible with other techniques. These Merkle trees provide developers with the ability to compress exceedingly large sets of data by getting rid of all unnecessary data, and turning the data that remains into hashes. The various features provided by Merkle trees include:

  • Very lightweight structure

  • Effective scalability

  • Fuel efficiency

  • Verification that transactions are included in a specific block

  • Basic payment authentication

Applications of Merkle Trees and Merkle Roots in Blockchains

Merkle tree and Merkle root structures have already been widely adopted across many different blockchains and cryptocurrency platforms. The following details three such applications.

Bitcoin

Bitcoin uses Merkle trees in several ways, which makes these trees integral to the entire Bitcoin platform. In fact, these trees are present in every Bitcoin block header. The hash for every transaction that's available within the block is placed in the header. When it comes to Bitcoin, the Merkle root is important for mining as well as verification.

Mining

Bitcoin blocks consist of headers that contain metadata as well as an extensive list of transactions. This list is usually larger than the block's header. Miners hash data to create an output that adheres to specific conditions, which is necessary when validating a block. The miners can make trillions of separate attempts before they find a valid block. Every attempt requires a number in the header of the block to be changed. Even though thousands of separate transactions can exist in a block, each one must be hashed.

Merkle roots allow miners to make this process much more efficient. When the mining process begins, all that's necessary is for the transactions to be made into a Merkle tree, after which the root hash can be placed within the block header. At this point, the miner is only required to hash the header of the block, as opposed to the entire block.

Verification

Another aspect of the Merkle root that's used with Bitcoin involves leverage, which focuses on light clients. When a node is being operated on a relatively weak device that has limited resources, users won't be able to download and hash every transaction in a single block. Instead, a Merkle proof can be requested, which is confirmation that a transaction is present in a block. By reducing the number of hashes that need to be performed during the verification process, verification can occur without using as many computing resources.

Ethereum

Ethereum is based on a somewhat modified version of the Merkle tree, which is why it's referred to as the Merkle Patricia tree. Every block within the Ethereum blockchain consists of three Merkle trees, as opposed to one binary tree — which is what happens in Bitcoin blocks. Each of the three roots has its own purpose.

The initial root is considered to be the root for every transaction. As for the second root, it shows the state of the transaction. The final root is the receipt of the transaction. A user can look at a Merkle root to determine if a transaction is found on a specific block, as well as determining what their account balance is.

Hyperledger Fabric

When looking specifically at Hyperledger Fabric, this blockchain platform uses a Merkle tree to compute block data as a hash. The hash value identifies the width of the Merkle tree. Merkle trees on the Hyperledger Fabric platform work just like the ones on the Bitcoin platform.

The Bottom Line

Merkle trees have proven to be highly useful for cryptocurrency platforms that want to make sure their transaction verification process is as easy and efficient as possible. Without this structure in place, verification would be a time-consuming process because the data would need to be transferred throughout the entire network for verification. The platforms that use Merkle trees benefit from fewer bandwidth and computational power requirements.