What Is a Merkle Tree in Crypto and How Does It Work?

Blockchain and cryptocurrencies are a vast and complex landscape. Many cogs go into this machine, including something known as a Merkle tree. Merkle trees play a key role in blockchain functionality, but what exactly does it do? How does a Merkle tree work, and why is it so important in blockchain technology?

How Does a Blockchain Work?

Before getting into the dynamics of the Merkle tree, it’s important to understand how blockchains work.

In the simplest terms, a blockchain is a virtual chain of blocks, each containing its own set of data. Each block uses cryptography, specifically hashing, to secure data and keep it out of the hands of malicious actors.

Blockchains are most commonly used in the cryptocurrency industry, where each and every transaction conducted with a given asset is recorded on its native blockchain. Furthermore, each transaction is recorded chronologically and visible to the entire blockchain (viewable using tools like a blockchain explorer).

Transactions on a blockchain cannot be altered or deleted. Instead, using a process called hashing, data is encoded through mathematical algorithms. These algorithms can convert any length of characters into a fixed, encoded length.

When recording transactions on a blockchain, Merkle trees play a crucial role. But how does a Merkle tree work?

What Is a Merkle Tree?

The name “Merkle tree” has two origins. “Merkle” refers to Ralph Merkle, an American computer scientist and mathematician who contributed massively to public-key cryptography. Merkle initially proposed binary hash trees in 1987 in a paper titled “A Digital Signature Based on a Conventional Encryption Function.” Merkle also invented cryptographic hashing, which is used in the Merkle tree.

The second part of “Merkle tree” stems from its structure. A Merkle tree (or a binary hash tree) is a data structure that looks somewhat like a tree. Merkle trees contain “branches” and “leaves,” with each “leaf” or “branch” containing the hash of a data block.

In short, a Merkle tree streamlines the process of storing transactional hashes on a blockchain. It groups together all the transactions within a single block and efficiently encodes them for safer and faster storage in the form of one hash. Using a Merkle tree, the validity of the data can be quickly assessed through one final hash. This simplifies the data storage process but also maintains security integrity.

Merkle trees also don’t require many computational resources. In fact, they cut down the storage space required for data by compiling multiple transaction hashes into just one. The use of resources has long since been a point of contention in the crypto industry, as blockchain networks can be a huge drain on storage space and power. So, using Merkle trees helps in mitigating this issue. On-chain data storage can also be pricey, so using Merkle trees to cut down on the amount of data can help blockchain platforms save money.

What’s more, the Merkle tree process doesn’t take very long, which is good news regarding efficiency. After all, many blockchains have been slated for their long transaction times (including Bitcoin), so any process that can help with this issue is a plus.

Merkle trees are used in many areas of computing (particularly cryptography and encryption) but are often known for their presence in cryptocurrency blockchains. Bitcoin, Ethereum, Dogecoin, and all other cryptocurrencies use the Merkle tree, so it’s undoubtedly an important element.

So, how does it work?

How Does a Merkle Tree Work?

Below is a diagram of how a Merkle tree works. Note that, in reality, there would be many more transactions and hashes per tree, but this image simplifies the process so you can get an idea of the steps involved.

Image Credit: Azaghal/Wikimedia Commons

Looking at this Merkle tree diagram, things look a little complex. But the process of Merkle tree hashing is quite straightforward when broken down.

There are a couple of steps that go into the Merkle tree process. The hashes at the bottom of the Merkle tree are known as leaves, while the hashes in the middle of the tree are known as branches. The branches are also sometimes referred to as non-leaf nodes. At the very bottom of the diagram, you’ve got the data blocks (or transactions) from which the hash will emerge.

The initial transactions from each node are hashed in pairs, with one hash remaining as the outcome. Then, pair upon pair are repeatedly hashed into one until a single hash emerges, where the process ends. If there happens to be an odd number of transactions within a block, one transaction will be duplicated so that it can be paired with the original for hashing.

Though the final hash appears at the top of the above diagram, it is known as the “root” of the tree (the root hash). The root is essentially the culmination hash of all the individual hashes of transactions stored within the block. One Merkle tree is required per block, meaning each block has one Merkle Root data field.

If you’ve ever looked into blockchains in-depth, you may have heard of the Merkle Root or Merkle Hash. Within a block exists something known as a hashMerkleRoot. This data (the final hash at the end of the tree) is kept in the block header of a given block. A blockchain block also holds other data, such as a timestamp, asset version number, and the “nonce” (number only used once).

Can Blockchains Function Without Merkle Trees?

While Merkle trees aren’t absolutely required for a blockchain to exist, they play an incredibly important role in securing data.

Without Merkle trees, cryptocurrency blockchains require more resources and time to carry out key processes. Firstly, every node within the network would have to keep its own copy of every transaction conducted on the blockchain. On bigger blockchains, hundreds of thousands of transactions can take place in the space of just one day, so adding such a volume of data to each node’s copy would undoubtedly consume a lot of resources.

What’s more, Merkle trees play a big role in data verification. Via the single root hash at the end of the tree, validators and miners can verify whether the block, as a whole, is valid to be added to the blockchain. Being able to authenticate data without sifting through every single transaction is a plus, saving time and storage space.

Merkle Trees Are Key in Blockchain Functionality

There’s no denying that Merkle trees offer blockchains security and efficiency without taking up a lot of space. This nifty cryptographic process allows blockchains to operate seamlessly without the need for excessive usage of resources. Merkle trees aren’t essential but massively beneficial when it comes to time, storage space, and data authentication.