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A Beginner’s Guide to Merkel Trees in Blockchain

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Merkle trees ensure data integrity, efficiency, and scalability within blockchain networks, making them an essential part of this fast-growing technology.

Merkle trees, staples of the computer science ecosystem, have found usage in the cryptocurrency space. Interest in them has recently increased within the crypto sector as a result of the FTX debacle.

This article is an in-depth exploration of Merkle trees in blockchain, explaining what they are, how they work, and their applications in the industry.

What Are Merkle Trees?
A Merkle tree, also a hash tree or a binary hash tree, is a data format with applications in computer science and cryptography.

At its core is the hierarchical layout of data blocks defined by a cryptographic hash. This layered arrangement of data blocks gives it a tree-like appearance.

The concept of Merkle trees is the brainchild of Ralph Merkle, who patented it in 1979, thus its name. They are crucial in safeguarding data purity and security in sectors dealing with large datasets like blockchain.

The Structure of Merkle Trees in Blockchain
To better understand the structure of Merkle trees in blockchain, imagine an upturned tree with three primary levels. At the top is the Merkle root, the non-leaf nodes occupy the middle part, and the leaf nodes are at the bottom.

The leaf nodes are the building blocks of the Merkle tree. They are the hashes of every transaction occurring in a given block. You may know them better as transaction IDs (TXIDs) that are viewable via a block explorer.

Non-leaf nodes, forming the second level of a Merkle tree, are bundles of paired leaf node hashes. They derive their name from the fact that they don’t contain TXIDs. Instead, they only store the transaction hashes of the two leaf nodes making them.

Finally, at the tree’s topmost non-leaf node is the Merkle root. It is a single hash representing all the block’s transactions hashes. The Merkle root is the block’s exclusive identifier and is crucial in verifying its authenticity.

How Do Merkle Trees in Blockchain Work?
Here is how Merkle trees in blockchain work:

Step 1: Transaction Hashing
A cryptographic hash function, say SHA-256, hashes all the transactions in the block. This process produces a unique identity (hash) for each, making that data incorruptible.

Step 2: Pairing the Hashes
The same function pairs and hashes two transaction hashes to create a new one. This pairing and hashing repeats at each level, with each child node forming a new parent node.

Step 3: Formation of the Merkle Root
The last two parent (non-leaf) nodes pair up to form a single hash, the Merkle root. This is the entire block’s cryptographic fingerprint and headlines it.

Step 4: Verifying a Block’s Integrity
You can verify the integrity of a given transaction by obtaining its corresponding hash from the Merkle root. Starting there and following the parent nodes, you can recreate the Merkle root. If the two match, then the transactions in the block are authentic.

Let’s consider a simple example with four transactions, A, B, C, and D, occurring in a given block:

Hashing Transactions: Each transaction is hashed:
hashA = hash(A)
hashB = hash(B)
hashC = hash(C)
hashD = hash(D)
Pairing and Hashing: The hashes are paired and hashed together:
hashAB = hash(hashA + hashB)
hashCD = hash(hashC + hashD)
Creating the Merkle Root: The resulting hashes are hashed together to create the Merkle root:
MerkleRoot = hash(hashAB + hashCD)
Merkle Trees as Proof-of-Reserve
Proof-of-Reserve (PoR) is a bookkeeping practice centralized exchanges (CEXs) and other crypto custodians use to prove their financial health. It’s an open report of the company’s crypto holdings. Calls for PoR audits have grown with the increase in crypto-related fraud cases.

Given that CEXs hold large sums of crypto, Merkle trees are a convenient way of proving their reserves. Here is how they help them achieve that:

Gathering user balances: The CEX or custodian compiles a list of all users and their balances.
Hashing user balances: It then uses a cryptographic function to hash each user’s holdings.
Constructing the Merkle tree: The CEX arranges the hashed user balances in a hierarchical structure. It then hashes these in pairs, forming a Merkle root.
Publishing the Merkle root: The next step is sharing the Merkle root publicly. This activity enables users to verify their balances without revealing the entire list of their credits.
Verification: Users can verify their balances by obtaining their Merkle proofs, which are paths from their balance hashes to the Merkle root.
Why Are Merkle Trees Important for Blockchains?
Merkle trees ensure data integrity, efficiency, and scalability within blockchain networks. By hashing individual transactions and combining them into a Merkle root, they create a tamper-proof identifier for each block. So, any correction to a transaction alters the Merkle root, alerting the network of potential tampering.

Moreover, they help in achieving verification efficiency. Users can quickly check a transaction’s probity by comparing its hashes with those in the Merkle tree. Furthermore, they don’t need to download and compare entire blocks.

They also contribute to a blockchain’s scalability by reducing data transmission and verification requirements. This way, they help improve the network’s performance. Besides, they minimize storage needs by storing only the Merkle root and relevant transaction hashes. Thus, they benefit nodes with limited storage capacity.

Source: unchainedcrypto.com

The post A Beginner’s Guide to Merkel Trees in Blockchain appeared first on HIPTHER Alerts.

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Supply Chain Finance Market Forecast to Reach $9.4 Billion by 2029: Increasing Emphasis on Sustainable Sourcing

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Global Supply Chain Finance Market

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Web3 Startups Raise Nearly $1.9B in Q1 2024 Despite Overall Downtrend in Crypto VC Interest

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Venture capital funding for cryptocurrency and blockchain projects has seen a notable resurgence in the first quarter of 2024, marking its first quarterly rise since 2021. Crunchbase data released today indicates that Web3 startups secured nearly $1.9 billion in funding across 346 deals during this period. This represents a substantial 58% increase from the previous quarter, offering a glimmer of hope amidst the ongoing downward trend in overall crypto VC interest.

The recent surge in funding can be attributed to investors adopting a more long-term perspective on Web3, as opposed to the hype-driven “tourist investors” predominant in recent years. Chris Metinko, the author of the report, notes that investors are shifting their focus to the AI sector, indicating a change in investment strategy. There is a growing interest in supporting the foundational infrastructure of the decentralized internet, rather than solely concentrating on crypto wallets and lending platforms, which attracted significant investments during the peak period of 2021 to 2022.

While large funding rounds were relatively uncommon in Q1, several notable investments stood out. Exohood Labs, a company integrating AI, quantum computing, and blockchain, secured a remarkable $112 million seed round at a valuation of $1.4 billion. EigenLabs, an Ether token “restaking” platform, raised $100 million in a Series B round led by a16z crypto. Additionally, Freechat, a decentralized social network leveraging blockchain technology, secured $80 million in a Series A round. These investments, among others, contributed to the increase in valuations and the emergence of four new Web3 unicorns in Q1.

Despite the recent progress, the future trajectory of Web3 remains uncertain. Metinko suggests that the next few quarters will be pivotal in determining the industry’s direction. While investors anticipate a rebound in investment as the decentralized internet evolves, it may take another year for venture capital activity to stabilize after the exuberance of 2021. Factors such as the approval of U.S. spot Bitcoin exchange-traded funds and the upcoming Bitcoin halving could also influence the market, given the rising prices of Bitcoin and Ether.

A noteworthy example of significant funding in the Web3 space is Monad Labs’ recent successful funding round, which secured $225 million led by Paradigm. Monad Labs is a layer-1 blockchain compatible with Ethereum, offering faster transaction processing. This funding round harkens back to the golden era of crypto funding in 2021-2022, when L1 solutions attracted substantial investments.

Earlier this year, Balance, a digital asset custodian based in Canada, announced that it had once again reached $2 billion in assets under custody (AUC) amidst the recent market recovery. Similarly, Korea Digital Asset (KODA), the largest institutional crypto custody service in South Korea, has experienced remarkable growth in crypto assets under its custody, expanding by nearly 248% in the second half of 2023.

Analysts at Bernstein Research project that crypto funds could reach an impressive $500 billion to $650 billion within the next five years, representing a significant leap from the current valuation of approximately $50 billion. This forecast underscores the growing optimism and potential for substantial growth within the crypto industry in the coming years.

Source: cryptonews.com

The post Web3 Startups Raise Nearly $1.9B in Q1 2024 Despite Overall Downtrend in Crypto VC Interest appeared first on HIPTHER Alerts.

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ASIC cracks down on blockchain mining firms

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Three blockchain mining companies – NGS Crypto, NGS Digital, and NGS Group – along with their directors, Brett Mendham, Ryan Brown, and Mark Ten Caten, are facing legal action from the Australian Securities and Investments Commission (ASIC) for allegedly operating without a license, in violation of Australia’s Corporations Act. ASIC initiated legal proceedings against these entities on April 9, citing concerns about their non-compliance with financial regulations and their solicitation of Australian investors.

According to ASIC, the NGS companies promoted blockchain mining packages with fixed-rate returns to Australian investors, encouraging the transfer of funds from regulated superannuation funds to self-managed superannuation funds (SMSFs) for conversion into cryptocurrency. Approximately 450 Australians invested a total of around USD 41 million in these packages, raising concerns about potential financial losses.

The legal action filed by ASIC alleges that the companies violated section 911A of the Corporations Act, which prohibits companies from providing financial services without a valid Australian Financial Services Licence (AFSL). ASIC is seeking interim and final court orders to prohibit the NGS companies from offering financial services in Australia without an AFSL.

ASIC Chair Joe Longo emphasized the importance of investors carefully considering the risks before investing in crypto-related products through their SMSFs. Longo stated that ASIC’s actions send a message to the crypto industry about the regulator’s commitment to ensuring compliance with regulations and protecting consumers.

In a separate development, the Federal Court appointed receivers for the digital currency assets associated with the NGS companies and their directors to safeguard these assets amid concerns about the risk of dissipation. Mendham was also issued a travel restriction order, preventing him from leaving Australia.

While a court date for the proceedings has not been set, ASIC’s investigation is ongoing, with the regulator continuing to gather evidence and build its case. It is worth noting that the investigated companies share a similar name with NGS Super, a legitimate Australian pensions provider, leading to potential confusion among investors. NGS Super clarified that it is not involved in selling cryptocurrency or related products and has taken legal action to protect its trademark and members’ interests.

Source: iclg.com

The post ASIC cracks down on blockchain mining firms appeared first on HIPTHER Alerts.

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