Why Merkleizing Contracts ?
In many real world scenarios, the size of a Marlowe contract can pose challenges. For instance, a contract may be too big to fit on a Cardano transaction. To handle this situation, the Marlowe semantics and plutus validator both support a size optimization called merkleization. Merkleization is a process that transforms a contract from a tree structure into a merkle DAG (directed-acyclic graph) consisting of multiple contract fragments that reference each other by hashes.

Merkle DAGs translate well to storage in UTxO-based blockchains like Cardano, because these blockchains are themselves merkle DAGs. Transactions reference outputs of previous transactions by their hashes.

A merkleized Marlowe contract gives just enough information to validate the next transaction. When applying an input to a merkleized contract, the next contract fragment must be provided alongside the input. As long as the continuation's hash matches the hash contained in the existing fragment, we know the continuation is genuine. The provided continuation can then be used to compute the next contract that will be in effect after the input is applied.

This Milestone handles the work for adding basic support for large contracts in the ts-sdk. Future work might be needed in order to improve the DX