How Does a Merkle Tree Enable “Simplified Payment Verification” (SPV)?
A Merkle Tree organizes all transactions in a block into a single root hash. SPV clients, typically light wallets, only need the block header and a small path of hashes, called a Merkle proof, to verify that a specific transaction was included in the block.
They do not need to download the entire blockchain, saving bandwidth and storage. This path confirms the transaction's inclusion without revealing all other transactions.
Glossar
Spv Client
Architecture ⎊ A Special Purpose Vehicle (SPV) client, within cryptocurrency and derivatives, represents the originating entity establishing a segregated financial structure for specific transactions, often isolating risk associated with complex instruments like options or perpetual swaps.
Unspent Transaction Output
Ledger ⎊ An Unspent Transaction Output (UTXO) represents a verifiable, non-expended quantity of cryptocurrency associated with a specific address on a blockchain.
Payment
Settlement ⎊ Payment within cryptocurrency, options trading, and financial derivatives represents the actual transfer of value, typically digital assets or fiat currency, to fulfill contractual obligations arising from a trade or contract execution.
Merkle Tree
Architecture ⎊ A Merkle Tree, within cryptocurrency and derivatives, functions as a cryptographic verification tool, efficiently summarizing and securing large datasets of transaction information.
SPV
Mechanism ⎊ SPV, or Simplified Payment Verification, is a cryptographic mechanism enabling a light client to verify the existence and validity of a transaction on a blockchain without requiring the download and processing of the entire distributed ledger.