A Merkle tree, also known as a binary hash tree, is a data structure used in computer science applications. In the context of blockchain technology, Merkle trees serve to encode blockchain data more efficiently and securely.^[1]

Overview

In Bitcoin’s blockchain, a block of transactions is run through an algorithm to generate a hash, which is a string of numbers and letters that can be used to verify that a given set of data is the same as the original set of transactions. Each transaction is hashed, then each pair of transactions is concatenated and hashed together, and so on until there is one hash for the entire block. This structure resembles a tree, with the hashes on the bottom row referred to as “leaves”, the intermediate hashes as “branches”, and the hash at the top as the "root".

The Merkle root of a given block is stored in the header. The Merkle tree allows users to verify a specific transaction without downloading the whole blockchain. For example, if one wanted to verify that a specific transaction is included in a block, one could query the network about the hash of that transaction, and it would return the necessary hashes to verify that everything is accounted for.^[1][4][7]

The main purpose of a Merkle tree is to verify the integrity of data. Merkle trees are fundamental to ensuring the security and efficiency of blockchain technology. In the context of blockchain technology, it serves several important purposes:

• Efficient and Secure Data Verification: Merkle trees allow for efficient and secure verification of large data sets. This is crucial in blockchain technology where the amount of data can be quite large and constantly growing.
• Transaction Verification: In Bitcoin’s blockchain, for example, a Merkle tree allows users to verify a specific transaction without downloading the entire blockchain. This is particularly useful for lightweight, SPV (Simplified Payment Verification) clients, which only download a subset of the blockchain for verifying transactions.
• Data Integrity and Consistency: The Merkle root, which is stored in the block header, helps ensure the integrity and consistency of all transactions in a block. If any single transaction were to change, it would result in a different Merkle root.
• Preventing Double Spending: By ensuring that each transaction block refers to the preceding block, Merkle trees help prevent double spending, a potential flaw in a digital cash scheme where a user can spend the same money more than once.

History

The concept of a Merkle tree was first proposed by Ralph Merkle in a 1987 paper titled "A Digital Signature Based on a Conventional Encryption Function". He also invented cryptographic hashing. The technology behind the Merkle Tree was patented in 1989.

Before the invention of Bitcoin, cryptography was used in software development to secure data. After Merkle, renowned for public-key cryptography, introduced the Merkle Tree for verifying data integrity in a peer-to-peer network, he then introduced the concept of hashing, as a new mode of verification conduct. Merkle trees are now used in various applications including peer-to-peer networks, distributed systems, and blockchain technology. They are fundamental to the operation of cryptocurrencies like Bitcoin and Ethereum.^[1][5][9]

Types of Merkle Tree

There are different types of Merkle trees based on the number of child nodes each parent node can have. Some examples are:^[8]

• Binary Merkle trees: These are the simplest and most common types of Merkle trees, where each parent node has only two child nodes. They are used to efficiently summarize and verify large data sets, such as files or transactions.
• Patricia trees: These are a more complex type of Merkle trees used in Ethereum for processing transactions for smart contracts. Patricia trees can have many more child nodes per parent, making them suitable for more complex operations.

Use Cases

Merkle trees have a wide range of applications, particularly in systems that require data integrity checks. Here are some notable applications and the applications of Merkle trees extend to many other domains as well:^[2][7][10]

• Cryptocurrencies: Merkle trees are fundamental to the operation of cryptocurrencies like Bitcoin and Ethereum. They are used to efficiently store and verify transactions in a block.
• Distributed Systems: Distributed systems such as peer-to-peer networks use Merkle trees to ensure that data blocks received from other peers are received undamaged and unaltered.
• File Systems: File systems like InterPlanetary File System (IPFS), Btrfs, and ZFS use Merkle trees to counter data degradation.
• Databases: Scalable databases like Dynamo DB and Apache Cassandra use Merkle trees.
• Certificate Transparency: Certificate authorities use Merkle trees for the verification of certificate transparency.
• Digital Signatures: Merkle trees are used in digital signatures.
• Data Integrity Checks: Any system that needs to check inconsistency can use Merkle trees.
• Stock Trading: An application that needs to keep track of daily stock trading activity is a perfect example of where a Merkle tree might be useful.

Examples

Some examples of Merkle Trees' implementations are:^[7]

• IPFS: IPFS is a peer-to-peer protocol for storing and sharing files in a distributed file system. IPFS uses Merkle trees to represent files and directories as Merkle DAGs (directed acyclic graphs). Each node in the DAG is identified by a unique hash, and links to other nodes are encoded as part of the data. This allows for efficient deduplication, verification, and synchronization of data across the network.
• ZFS: ZFS is a file system that provides features such as data integrity, compression, encryption, and snapshots. ZFS uses Merkle trees to store the metadata of the file system, such as file names, sizes, permissions, and checksums. Each block of data has a checksum that is stored in its parent block, forming a tree that ends at the root block. This allows for detecting and correcting data corruption, as well as verifying the consistency of snapshots and backups.
• Ethereum: Ethereum is a blockchain platform that supports smart contracts and decentralized applications. Ethereum uses Merkle trees to store the state of the network, such as accounts, balances, transactions, and contract codes. Ethereum uses a variant of Merkle trees called Patricia trees, which can have more than two child nodes per parent node and can store key-value pairs efficiently. Patricia trees enable fast proofs of existence and non-existence of data, as well as light client protocols.