Midnight Smart Contracts

Midnight smart contracts are replicated state machines that process transactions to modify ledger state. Unlike traditional blockchains, they incorporate zero-knowledge proofs to enable data privacy.

Core Architecture

Contract = State Machine + ZK Proofs

Transaction = Public Transcript + Zero-Knowledge Proof

• Public transcript: Visible state changes
• ZK proof: Cryptographic validation that rules were followed

The proof demonstrates correct execution without revealing private inputs.

Compact Language

Compact is Midnight's domain-specific language for writing privacy-preserving contracts.

Contract Structure

// Ledger state (on-chain, public unless MerkleTree)
ledger {
  counter: Field;
  commitments: MerkleTree<32, Bytes<32>>;
}

// Circuit = entry point with ZK proof
export circuit increment(amount: Field): Void {
  ledger.counter = ledger.counter + amount;
}

// Witness = circuit with private inputs
export witness privateIncrement(
  secret: Field  // Private, not revealed
): Void {
  assert secret > 0;
  ledger.counter = ledger.counter + 1;
}

Key Constructs

Public vs Private State

Public State (Ledger)

Everything in ledger { } is publicly visible except MerkleTree contents:

ledger {
  public_counter: Field;           // Visible to all
  public_address: Address;         // Visible to all
  hidden_set: MerkleTree<32, T>;   // Contents hidden
}

Private State

Private data exists only in the user's local environment:

• Witness inputs (never go on-chain)
• Local variables in circuit execution
• Merkle tree paths

export witness transfer(
  secret_key: Bytes<32>,    // Private - user's machine only
  amount: Field             // Private - user's machine only
): Void {
  // Prove authorization without revealing key
  const pub_key = persistentHash(secret_key);
  assert pub_key == ledger.authorized;
  // ... rest of logic
}

Execution Model

Transaction Phases

1. Well-formedness check (no ledger state needed)

   • Format validation
   • ZK proof verification
   • Schnorr proof verification
   • Balance checks

2. Guaranteed phase (must succeed)

   • Contract lookups
   • Zswap offer application
   • Sequential contract call execution
   • State persistence

3. Fallible phase (may fail without reverting guaranteed)

   • Similar mechanics but failure doesn't prevent ledger inclusion
   • Guaranteed effects persist regardless

State Transitions

Old State + Transaction → New State
                ↓
        Impact Program Execution
                ↓
        Effects must match declared effects
                ↓
        New state stored

Impact VM

Impact is the on-chain virtual machine that executes contract logic.

Characteristics

Stack Structure

[Context, Effects, State]
   ↓        ↓        ↓
 Tx data  Actions  Contract data

Developer Note

Developers write Compact, not Impact. Impact is an implementation detail visible when inspecting transactions.

Value Handling

Contracts interact with tokens through Zswap:

// Receive coins into contract
receive coins: Coin[];

// Send coins from contract
send value: QualifiedValue, to: Address;

Important: Coin operations are recorded in the public transcript but don't directly modify contract state. They're Zswap-level operations.

Contract Deployment

Contracts are deployed via deployment transactions:

Deployment Transaction = Contract State + Nonce
Contract Address = Hash(deployment data)

Practical Patterns

Simple Counter

ledger {
  count: Field;
}

export circuit increment(): Void {
  ledger.count = ledger.count + 1;
}

Private Authorization

ledger {
  owner_hash: Bytes<32>;
  value: Field;
}

export witness authorizedUpdate(
  owner_secret: Bytes<32>,
  new_value: Field
): Void {
  assert persistentHash(owner_secret) == ledger.owner_hash;
  ledger.value = new_value;
}

Commitment-Based State

ledger {
  commitments: MerkleTree<32, Bytes<32>>;
  nullifiers: Set<Bytes<32>>;
}

export witness spend(
  amount: Field,
  secret: Bytes<32>,
  path: MerkleTreePath<32, Bytes<32>>
): Void {
  const commitment = persistentCommit(amount, secret);
  assert ledger.commitments.member(commitment, path);

  const nullifier = persistentHash(commitment, secret);
  assert !ledger.nullifiers.member(nullifier);
  ledger.nullifiers.insert(nullifier);
}

References

For detailed technical information:

• references/compact-syntax.md - Complete language reference
• references/impact-vm.md - VM internals, opcodes, gas costs
• references/execution-semantics.md - Detailed transaction execution flow

Examples

Working contracts:

• examples/counter.compact - Minimal contract example
• examples/private-vault.compact - Private state management