Merkle tree is a fundamental part of blockchain technology. It is a mathematical data structure composed of hashes of different blocks of data, and which serves as a summary of all the transactions in a block. It also allows for efficient and secure verification of content in a large body of data. It also helps to verify the consistency and content of the data. Both Bitcoin and Ethereum use Merkle Trees structure. Merkle Tree is also known as Hash Tree.
The concept of Merkle Tree is named after Ralph Merkle, who patented the idea in 1979. Fundamentally, it is a data structure tree in which every leaf node labelled with the hash of a data block, and the non-leaf node labelled with the cryptographic hash of the labels of its child nodes. The leaf nodes are the lowest node in the tree.
Before we dive further into Merkle Trees, it is important to mention blockchain. As you may already know, each transaction on a blockchain has its own unique transaction ID. For most blockchains, an ID is a 64-character code that takes up 256 bits (or 32 bytes) of memory.
When you think about the fact that blockchains are usually made up of hundreds of thousands of blocks, and that each block can contain up to several thousand transactions, it becomes clear that memory space and computing power are two big problems. As a result, it is advantageous to use as little data as possible when processing and verifying transactions. It not only reduces CPU processing times, but also ensures a higher level of security.
And that is precisely what Merkle Trees do. Essentially, Merkle Trees take an enormous number of transaction IDs and run them through a mathematical process that results in one 64-character code, which is called a Merkle Root. The Merkle Root is vital because it authorizes any computer to quickly verify that a specific transaction took place on a certain block as accurately as possible.