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When reading about cryptocurrencies, you might encounter the term Merkle tree, particularly in ICO WhitePapers. Let's explore what a Merkle tree is and its significance in digital currency systems.
UNDERSTANDING THE MERKLE TREE
A Merkle tree is essentially a type of hash function that converts data sets into fixed-length strings. To put it simply, it processes input data and transforms it into a unique binary code sequence. Each output is distinct for different inputs.
Key characteristics of the Merkle tree (also known as a hash tree) include:
- The ability to create unique identifiers for documents
- Capability to verify digital document integrity
- Functionality to restore lost files
This structure, invented by Ralph Merkle in 1979, resembles a tree-like formation where the terminal nodes contain data block hashes.
The process works in this sequence:
- Multiple data blocks (numbered 1-4) enter the system
- Individual hashes are generated from each data cluster
- These hashes undergo further hashing until a single hash value (Merkle root) remains
This method allows for the compression of any amount of hash data into one final hash.
MERKLE TREES IN BITCOIN
While hash trees traditionally serve to check for data errors in file systems, Bitcoin employs them for Simplified Payment Verification (SPV). Light clients utilize this feature, storing only block headers rather than complete data.
These light clients verify transactions by requesting Merkle proofs instead of recalculating all hashes. The proof includes the Merkle root and branch, containing hash paths from transactions to the root. This enables reference to specific transactions without needing complete transaction data.
This Merkle tree implementation significantly reduces network burden and enhances processing speed. For instance, five maximum-size transactions might total 500 KB, while their Merkle tree representation would only occupy around 140 KB.
It's important to mention that hash trees aren't exclusive to Bitcoin. Other cryptocurrencies, like Ethereum with its Merkle Patricia tree, also utilize similar structures with various modifications. These variations will be discussed in a future article.
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