Howdy, fellow DailyCoiners,In today’s newsletter, we're going to clear up some things you've probably heard of but might not completely understand.

Without further ado, let’s uncover what they mean.

• What are Smart Contracts?

• What Does Zero-Knowledge Proof Mean?

• Roll-ups; Optimistic vs. ZK roll-ups

Smart Contracts: Automating Trust and Efficiency in Transactions

A smart contract is a self-executing program that automates actions required in agreements or contracts, allowing trackable and irreversible transactions.

Facilitating trusted transactions among anonymous parties without central authorities, smart contracts eliminate the need for legal systems or external enforcement mechanisms.

Smart contracts have various applications, such as: 

• ensuring transactions between parties

• real estate

• stock trading 

• lending 

• corporate governance 

• supply chain 

• dispute resolution

• healthcare. 

For instance, a manufacturer can set up payments using smart contracts for raw material purchases, transferring funds automatically upon shipment or delivery.

They expedite contract execution, eliminate human error, and prevent alterations in programming. 

However, smart contracts also have downsides. They are permanent, which means mistakes cannot be rectified, and they rely on the programmer to ensure the code accurately addresses contract terms. 

Additionally, coding loopholes may allow contracts to be executed in bad faith. 

Despite these challenges, smart contracts continue revolutionizing various industries by offering trust, efficiency, and transaction autonomy.

Zero-Knowledge Proofs: Enhancing Privacy and Security in Crypto

A zero-knowledge proof (zk protocol) is a verification method between a prover and a verifier, allowing the prover to demonstrate knowledge of specific information without revealing it.

Introduced in a 1985 MIT paper by Shafi Goldwasser and Silvio Micali, zero-knowledge proofs increase privacy and security for many crypto applications.

To be considered a zk proof, the system must fulfill two requirements: completeness and soundness. 

Completeness ensures the prover can demonstrate knowledge of the information with high accuracy, while soundness allows the verifier to determine the prover's possession of the data reliably. 

An authentic zero-knowledge proof achieves both requirements without information being communicated between parties.

Optimistic vs. ZK-Rollups: Pros and Cons in Scaling Solutions

Rollups present different ways of verifying transactions off-chain and handling disputes on-chain, with the two main types being optimistic rollups and ZK-rollups. Each type comes with distinct benefits and drawbacks.

Optimistic rollups offer high potential throughput and low latency, executing transactions almost instantly off-chain. 

They preserve smart contract compatibility and composability with Ethereum by utilizing the same virtual machine (EVM) and state transition rules. 

However, their main drawback is the lengthy withdrawal period needed for users to exit the system safely. This waiting period, which can exceed a week, ensures no fraud proofs are submitted against users' transactions; otherwise, funds may be at risk.

ZK-rollups also provide high throughput and low latency, executing transactions off-chain and securing them on L1. 

Their disadvantage lies in their complex cryptography and engineering structure, making them more expensive and challenging to implement than optimistic rollups. Additionally, ZK-rollups may not support all types of smart contracts or functionalities available on Ethereum.

In summary, both optimistic and ZK-rollups offer solutions to improve throughput and latency in blockchain systems. 

Optimistic rollups excel in compatibility and composability but suffer from long withdrawal periods. 

On the other hand, ZK-rollups provide enhanced security but face challenges in complexity and limited smart contract support.

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