Digital Currency (Cambridge (CIE) IGCSE Computer Science): Revision Note

Digital currency is one that only exists in digital form

Currency is stored in digital wallets or accounts; there are no physical banknotes or coins

It can be exchanged online to pay for goods and services or to transfer money internationally

Digital currency can be either centralised or decentralised

• Centralised digital currency is controlled by a single authority, such as a bank or government

• Decentralised digital currency is not controlled by any single authority; it relies on a network of users instead

Cryptocurrency is a type of digital currency

Cryptocurrencies can be highly volatile, meaning their value can fluctuate rapidly in a short period of time

This makes cryptocurrency investment risky

All transactions made using cryptocurrency are publicly available and tracked using cryptography

Examples include

• Bitcoin

• Ethereum

A blockchain is a digital ledger that records every transaction made with a particular digital currency

Transactions are time-stamped and added to the blockchain in a permanent and unalterable way

A blockchain is a decentralised technology, meaning that it is not controlled by a single entity or authority

• Instead, every participant in the network has a copy of the ledger and can verify the transactions independently

The blockchain is made up of "blocks" of transactions that are linked together in a "chain" using  cryptographic algorithms

• This creates a secure and tamper-proof record of every transaction made with the digital currency

• Each block stores a unique hash and the previous block's hash, which is how blocks link together

• Changing any block invalidates every block after it, so any tampering is immediately detectable when nodes compare their copies of the ledger

Each transaction in the blockchain must be verified by multiple participants in the network 

• This verification process ensures that the transaction is legitimate and prevents any fraudulent activity