Digital Currency
Computer Science: Cambridge International GCSE, topic 1.5.7
Digital Currency
A digital currency is a recently popular form of money that exists only electronically, unlike coins or banknotes.
What is digital currency?
- Digital currencies are money that exists electronically, without a physical form.
- Examples include cryptocurrencies like Bitcoin, Ethereum, Central Bank Digital Currencies (CBDCs), as well as digital versions of national currencies.
- They are used to:
- Buy goods and services
- Invest
- Transfer money internationally between individuals or organisations
Features of digital currency
- Digital currency is stored in digital wallets on computers or mobile devices.
- Transactions take place over the internet.
- The currency can be sent quickly across the world.
- They are usually more secure than cash (harder to steal physically).
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What is blockchain?
- Blockchain is the technology that many digital currencies use to record transactions.
- It is a digital ledger – a shared, public, time-stamped list of all transactions that is spread across many computers.
- Once a transaction is recorded on the blockchain, it cannot be altered.
- Each block of transactions is linked to the one before it → “chain”.
How blockchain works
- A user requests a transaction (e.g. sending digital currency to someone else).
- The transaction is grouped with other recent transactions into a 'block'.
- Computers on the network solve complex mathematical problems to verify the transaction.
- Once the transaction is deemed legitimate, the new block is added to the end of the existing chain of blocks.
Key features of blockchain
- Security:
- Every block in the chain has a unique code, making it difficult to tamper with.
- If one block is altered, the entire chain after it is invalid.
- Decentralisation:
- The ledger is not stored in a place or controlled by a bank or government.
- It is distributed across many computers, which makes it secure.
- Immutability:
- Once a block is added to the chain, it cannot be changed or deleted.
- This makes the transaction history a permanent record.
Test yourself on Digital Currency
What is the key characteristic of a digital currency?
Which of the following is an example of a digital currency?