Learn about key concepts and how to write smart contracts and Dapps on Celo.

Celo Community

In this community, you will learn important Celo concepts, write smart contracts in Solidity, and build dapps on the Celo blockchain.

This course consists of only one module in which you will learn the most important blockchain concepts you will need to navigate the Celo ecosystem.

Congratulations you finished this interactive lesson.Now you have learned the basic Blockchain concepts and are ready to get started with your blockchain journey. In the next section, you can find your certificate.

Lesson complete!

Please select the best explanation of why we need cryptography from the available options.

![](https://i.imgur.com/ardNXFy.jpg)

Cryptography (from greek: kryptós "hidden, secret") is the practice and study of techniques for **secure communication**.

Secure communication can guarantee:

* **Privacy** - Only the receiver is able to read the message.
* **Integrity** - A message has not been tampered with by a third party.
* **Authenticity** - A message was sent by the described sender.

Cryptographic techniques allow us to send sensitive information via unsecured communication channels. 

To send a secure message, a sender can **encrypt** it. In this process, the original information (*plaintext*) gets converted into an **encrypted** version (*ciphertext*) via an algorithm (*cipher*).

In order for the receiver of the message to read it, they need to **decrypt** it, which describes the process of converting the *ciphertext* back to *plaintext* via a key.

Since all information is public, cryptography is crucial for blockchain technology. *Public-key cryptography*, for example, one of the most widely used forms of encryption, is used in blockchain technology to create accounts, addresses, and private keys.

Cryptography

Please select the best description of peer-to-peer technology from the available options.

![](https://i.imgur.com/uLn9LyY.jpg)

Peer-to-peer (P2P) computer networks are distributed networks that share data and tasks between **equally privileged participants**.

In a peer-to-peer network, each peer (*node*) is connected to other peers through which they exchange data. There is no central host or server that controls the network, all peers have the same rights and communicate decentrally with each other.

Because P2P networks are decentralized, they don't have any single point of failure, which makes them more secure and *censorship-resistant* (no single entity can simply change important data/programs), although often less efficient than centralized networks.

Bitcoin was defined in its whitepaper as "A Peer-to-Peer Electronic Cash System". The peers in a blockchain network store the data of the blockchain, which in the case of Bitcoin contains the Bitcoin transactions.

Peer-to-peer

Please select the best description of Bitcoin from the available options.

![](https://i.imgur.com/wnpNzMz.jpg)

Bitcoin (BTC, ₿) is a **decentralized digital currency**. Bitcoins can be transferred on the peer-to-peer bitcoin network. The transactions are verified and stored by the nodes of the network in a distributed public ledger (record of transactions) called the *blockchain*.

Bitcoin consists of three main components:

1. **Bitcoin** the currency (BTC)
Like *fiat* (government-issued) and other money, Bitcoin can be considered a unit of account, a store of value, and a medium of exchange. 
In contrast to fiat money, Bitcoin and other cryptocurrencies are digital money that is not administered by any central entity and is not reliant on a third party to make transactions.
That's why Bitcoin is an "A Peer-to-Peer Electronic Cash System" ([Satoshi Nakamoto, 2008](https://bitcoin.org/bitcoin.pdf)).

2. The **bitcoin network**
The bitcoin network facilitates Bitcoin transactions. It is a peer-to-peer payment network that operates on a cryptographic protocol. 

3. The **Bitcoin Core** software
The bitcoin network consists of nodes, that run the Bitcoin Core software. Bitcoin Core is a free open source software that is not owned by any single entity, or cooperation. It is maintained by an open global community of software developers. 

Because there is no central authority: 
* Nobody can inflate the limited supply of 21 million Bitcoin. 
* No one can seize somebody's Bitcoin.
* No need for a bank account to participate in global commerce.
* Global transfers are theoretically fast and cheap.

But with high energy and transaction costs, regulatory uncertainty, and often poor user experience, Bitcoin also faces some challenges.

Bitcoin

Please select the best description of blockchain technology from the available options.

![](https://i.imgur.com/OFWjRQ3.jpg)

A blockchain is an ever-growing list of data entries called *blocks* that are linked together to form an **unchangeable chain** using cryptography. 

Blockchains are typically managed by a permissionless peer-to-peer network. The participants of the network (nodes) store the data of the blockchain.

Interactions that change the data in the blockchain are called *transactions*. They are sent to the peer-to-peer network and grouped into blocks of transactions. 

Special nodes in the network called *miners*, add new blocks of transactions to the blockchain and receive rewards in the native cryptocurrency for that.

The most innovative part of blockchain technology is the *consensus mechanism* that decides how miners can add new data in the form of blocks of transactions to the blockchain.

Bitcoin and Ethereum (for now) use a consensus mechanism called *proof-of-work* (POW). In POW miners need to spend computing power for the chance of being able to add a new block to the blockchain. Needing to spend energy on adding new data to the blockchain, prevents attackers from false entries because it is more profitable to add correct entries.

The revolutionary innovation of blockchain technology is the ability to **store data publicly in a permanent way**, not being dependent on a central decision-maker that could change the data.

Blockchain

Please select the best explanation of Ethereum from the available options.

![](https://i.imgur.com/7Oe4uJC.jpg)

Ethereum is a **decentralized blockchain-based computing infrastructure** that executes programs called *smart contracts* and enables developers to create decentralized applications (*dapps*). Ethereum has a native cryptocurrency called *Ether*.

Bitcoin has a very limited scripting language and is not designed to be programmed for anything else than peer-to-peer money.

Ethereum's language is designed to execute arbitrary code and enable developers to create all kinds of applications on top of blockchain technology.

Ethereum is sometimes described as a world computer because it uses blockchain technology as a global data storage, that can store code and data, and execute programs on one globally distributed machine. This virtual computer, whose state all participants in the network share is called the Ethereum Virtual Machine (*EVM*).

Because the execution of programs and storing of data on Ethereum must be done by all the nodes in the network, performing computational tasks and making changes to the state of the data needs to be paid for to prevent abuse. Computational work is measured in *Gas* and is paid in Ether. Changes in the state are submitted via transactions.

The idea of Ethereum is to apply the **benefits of blockchain technology to code and applications in general**. Enabling developers to create applications with built-in economic functions that are transparent, immutable (unchangeable), and accessible.

But like Bitcoin, Ethereum struggles among other things with, energy efficiency, high transaction costs, and poor user experience.

Ethereum

Please select the best explanation of Celo’s mission from the available options.

![](https://i.imgur.com/LTMQciu.jpg)

Celo is a **mobile-first** blockchain that focuses on creating an **accessible, environmentally friendly financial system**. 

The Celo blockchain was developed in response to the many challenges that popular blockchains like Bitcoin and Ethereum are facing.

**Stable Value Currencies**
A crucial challenge for accessibility and large-scale adoption of cryptocurrencies as a medium of exchange is their price volatility. Celo provides a growing family of *stablecoins* like *cUSD*, *cEUR*, *cREAL*, *USDC*, with a stable value that can even be used to pay transaction fees.

**Proof-of-Stake** 
Blockchains like Bitcoin and currently still Ethereum are using proof-of-work consensus mechanisms, which costs a lot of energy and leads to expensive and often slower transactions. Celo uses a *proof-of-stake* consensus algorithm that enables fast, affordable, and carbon-negative transactions.

**Phone Number Mapping**
Another barrier to the accessibility of cryptocurrencies is their poor user experience. Users need to generate a private/public key pair to receive a payment, and they need to know a user's address in order to send them a payment. Celo allows users to send cryptocurrencies just via phone numbers by mapping their phone numbers to public keys.

**Full EVM Compatibility**
Celo is fully EVM compatible and lets developers write code in the popular Solidity smart contract language. This means that the Celo ecosystem can make use of Ethereum tooling, contracts, and token standards like *ERC-20* or *ERC721* (NFT).

Celo

What are Smart contracts

![](https://i.imgur.com/oOYJBy8.jpg)

A smart contract is a **computer program that runs on a blockchain**.

Because smart contracts run (store code and state) on a blockchain, they are dependable and cannot be changed in ways that they weren't intended to by anybody after they are published.

While smart contracts are computer programs, the name refers to the fact that, because of their dependability, they can be used to handle agreements between multiple parties, like traditional legal contracts.

After the conditions of a traditional contract are met, the involved parties need to rely on each other to behave as stated in the contract or enforce further legal actions if they don't. Creating and enforcing traditional legal contracts is very time-consuming, expensive, and often biased toward parties with more financial resources.

Smart contracts specify the terms of agreements in computer code that executes instructions automatically once terms are met, without being able to be changed or stopped.

As a simple example, one could create a child trust fund that automatically withdraws funds to a child at a specific date, without the need for the involvement of anybody after the publication of the contract.

The difference between smart contracts to traditional computer programs is that **the execution of the code of smart contracts is guaranteed**. Smart contracts can not be modified in unintended ways, stopped, or deleted after they are published.

Smart contracts

Please select the best explanation of the potential benefits of Dapps from the available options.

![](https://i.imgur.com/k9ztbB2.jpg)

A decentralized application (dapp) is an **application that runs on a decentralized network** and not a centralized server. 

Dapps consist of:
* **Data** - That is stored on a blockchain.
* **Backend code** - That is written as smart contracts, running on a blockchain.
* **Frontend code** - The user interface can be written as for a traditional application, only making calls to a smart contract instead of a centralized backend.

**Trust**
Dapps are censorship-resistant and have no owners. Once the backend code is deployed to the blockchain, nobody can take it down, change it in unintended ways, block users, or get hacked. This also means that dapps have zero downtime. 

**Privacy and Transparency**
Dapps can be anonymously deployed (created). Interactions with dapps happen via an anonymous login through a user's wallet and their blockchain account. What data is shared and collected is transparent, as well as the logic of the code.

**Interoperability**
The smart contract code of a dapp is publically accessible in the blockchain and compatible with other smart contract code. This enables developers to build upon each other's work, leading to more and faster innovation. 

**Challenges**
But dapps also face some challenges. Since the backend code is immutable, the maintenance of a dapp can be difficult because the code cannot be easily updated. Interactions with dapps that lead to changes in the data can also be expensive and slow.

Dapps

Please select the correct statement.

![](https://i.imgur.com/0sJoaZN.jpg)

Celo accounts have a Celo balance and can **send and receive Celo transactions**.

There are two types of accounts: *Externally-owned* accounts and *contract accounts*.

**Externally-owned accounts**
Externally-owned accounts (EOAs) are human-controlled user accounts. 

They consist of a cryptographic pair of keys: A *public key* (that can be shared with others) and a *private key* (that should only be known to the owner).

The owner of a private key uses it to create a *digital signature* that is attached to a transaction, to authenticate that it was sent by them.

**Contract accounts**
A contract account consists of smart contract code that is deployed to the blockchain. It does not have a private key and is only controlled by the logic of the smart contract code.

Like EOAs, contract accounts can send and receive Celo and interact with other contracts. Only EOAs can initiate a transaction, but contract accounts can react to a transaction and call other contracts.

**Addresses**
Accounts can be identified via addresses. EOAs and contract accounts both have addresses that can be used to receive transactions.

To better understand externally-owned accounts, we can compare them to email accounts. Email accounts have an address that can be shared and is used to send them a message, but only the owner can send messages by authenticating via a password. Similar to the EAOs private key.


Accounts

![](https://i.imgur.com/PU9Fg0X.jpg)
A cryptocurrency wallet is a device that stores public/private key pairs to **manage cryptocurrency accounts**. A user can sign transactions and transfer cryptocurrency or execute smart contracts with a wallet.

The wallet is the primary user interface for Celo. It shows the Celo balance and transaction history, allows one to sign messages and transactions, and log in to Celo applications (dapps).

A wallet can handle multiple Celo accounts. It can also create new accounts and import old ones via their private keys.

There are two main types of wallet devices: software wallets and hardware wallets.

1. **Software wallets** - Sometimes, also called hot wallets, are usually connected to the internet. They come in the form of mobile, desktop, or web applications. Because they are connected to the internet, they are not as secure as hardware wallets.
2. **Hardware wallets** - Sometimes, also called cold wallets or cold storage, aren't connected to the internet. It is a physical device that holds your private keys and keeps them offline; this makes them more secure from attackers. 

**Seed phrase** 
Wallets have a seed phrase, also called the *secret recovery phrase* or *mnemonic*. It is a human-readable version of the private key that consists of a list of 12 or more dictionary words.
With the seed phrase, the user can recover a wallet and all accounts created with it, even if the software or hardware device that stored the wallet is not accessible anymore.

The terminology of a wallet is misleading; a wallet does not store tokens but pairs of private and public keys. It is more accurate to think of a cryptocurrency wallet as a keychain.

Interactive Module

Learning Objective

Blockchain Concepts

Cryptography