Authenticating Account Balances in the Bitcoin Ecosystem via Merkle Trees

Abstract

Bitcoin, as the trailblazing cryptocurrency, has profoundly impacted global markets and stands as a formidable contender to traditional financial paradigms. Yet, even within the sophisticated framework of Bitcoin, there remains potential for enhancement. Within the Bitcoin ecosystem, lightweight nodes operate without storing all transaction details. Instead, they retain only the block headers' content and specific transactional data pertinent to their own operations. To authenticate a transaction's presence in the blockchain, these lightweight nodes seek a Merkle proof from the full nodes. However, a challenge arises when lightweight nodes aim to validate the accuracy of their account balances sourced from full nodes. The latter relies on a data structure known as the Unspent Transaction Outputs (UTXO) for streamlined balance computation. In contrast, lightweight nodes grapple with ascertaining the veracity of such balance calculations. A viable solution lies in leveraging the available space in every block's coinbase transaction, which permits arbitrary modifications. By arranging the UTXO within a Merkle tree structure and embedding its root into the coinbase transaction's available space, account balance verification for lightweight nodes can be significantly enhanced using the Merkle proof. While such modifications to the Bitcoin protocol might trigger soft forks, the risk of hard forks remains absent.