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💻💰 Digital Currency – CIE IGCSE Computer Science Notes

1️⃣ The Concept of Digital Currency

🔑 Definition​

A digital currency is:

A form of money that exists only electronically (no physical coins or notes).

It is stored, transferred and managed using computer systems and networks.

🧠 Key Point (Syllabus Statement)​

✔ A digital currency only exists electronically.
✔ It has no physical form.

💳 Examples of Digital Currencies​

Examples include:

  • Bitcoin
  • Ethereum
  • Central bank digital currencies (CBDCs)

⚠️ Important:
Digital currency is different from online banking.

  • When you use a debit card, you are using traditional currency digitally.
  • Cryptocurrency is a purely digital form of currency.

🛠 How Digital Currencies Are Used

Digital currencies can be used to:

  • Buy goods and services (where accepted)
  • Transfer money between people
  • Store value
  • Make international payments
  • Invest or trade

🌍 Advantages of Digital Currency​

✔ Fast international transfers
✔ Lower transaction fees (sometimes)
✔ No physical cash needed
✔ Operates 24/7
✔ Can be decentralised (no central authority)

⚠️ Disadvantages / Risks​

❌ Price volatility
❌ Risk of hacking
❌ Loss of private keys means loss of funds
❌ Not accepted everywhere
❌ Limited legal protection

✍️ Exam Tip​

If asked for advantages/disadvantages:

  • Always give balanced answers.
  • Avoid vague answers like “it’s better”.

Be specific.

2️⃣ Blockchain Technology

🔑 Definition​

Blockchain is:

A digital ledger that is a time-stamped series of records that cannot be altered.

It records transactions in blocks that are linked together in a chain.

📘 What is a Ledger?​

A ledger is:

A record of financial transactions.

In blockchain:

  • The ledger is digital.
  • It is distributed across many computers.
  • It is shared publicly (in many cryptocurrencies).

🔗 How Blockchain Works (Basic Process)

Step 1: A Transaction Is Requested​

Example:

Alice sends digital currency to Bob.

Step 2: Transaction Is Broadcast​

The transaction is sent to a network of computers (called nodes).

Step 3: Transaction Is Verified​

Computers check:

✔ Sender has enough balance
✔ Transaction is valid
✔ No double spending

Step 4: Block Is Created​

Verified transactions are grouped into a block.

Each block contains:

  • Transaction data
  • Time stamp
  • A hash (unique code)
  • The hash of the previous block

Step 5: Block Is Added to Chain​

The block is:

  • Linked to the previous block using its hash.
  • Added permanently to the chain.

🔐 Why Blockchain Cannot Be Altered​

Each block contains:

  • Its own hash
  • The hash of the previous block

If someone tries to change data:

  • The hash changes
  • The chain breaks
  • The network rejects it

This makes blockchain tamper-resistant.

✍️ Exam Tip​

When explaining blockchain:

✔ Mention digital ledger
✔ Mention time-stamped
✔ Mention blocks linked by hashes
✔ Mention cannot be altered

🧱 Structure of a Block

A block typically contains:

  • Transaction details
  • Timestamp
  • Hash of current block
  • Hash of previous block

This creates a secure chain.

🌐 Decentralisation

Blockchain systems are often:

  • Decentralised
  • Not controlled by one organisation

Copies of the ledger are stored on many computers worldwide.

🔍 Why This Is Important​

  • No single point of failure
  • Harder to hack
  • Increased transparency

📊 Comparison Table

FeatureTraditional BankBlockchain
ControlCentral authorityDecentralised
Ledger storageBank serversDistributed network
Can records be changed?Yes (by bank)No (immutable)
TransparencyLimitedOften public

🎯 Important Terms to Remember

  • Digital currency
  • Cryptocurrency
  • Blockchain
  • Ledger
  • Block
  • Hash
  • Timestamp
  • Decentralised
  • Verification
  • Double spending

🚨 Common Exam Mistakes

❌ Saying blockchain stores physical money
❌ Forgetting to mention time-stamping
❌ Confusing digital currency with credit card payments
❌ Saying blockchain is completely unhackable (it is highly secure, not impossible to attack)
❌ Not explaining why it cannot be altered

📝 Example 4–6 Mark Question

Question:
Explain how blockchain is used to track digital currency transactions.

Model Answer Structure:

  • Blockchain is a digital ledger.
  • Transactions are grouped into blocks.
  • Each block is time-stamped.
  • Each block contains the hash of the previous block.
  • Blocks are linked together to form a chain.
  • Once added, blocks cannot be altered.
  • This allows all transactions to be tracked securely.

🧠 Summary

✔ Digital currency exists only electronically
✔ Blockchain is a digital ledger
✔ Blockchain records transactions in time-stamped blocks
✔ Blocks are linked using hashes
✔ Records cannot be altered
✔ Blockchain is often decentralised