Digital Currency | Computer for GCSE/IGCSE - Year 11 PDF Download

Digital Currency

A digital currency is a form of currency solely existing in electronic format, devoid of backing from physical commodities or governmental support.

Key Characteristics of Digital Currencies

• Solely Electronic Existence: Digital currencies lack physical form, residing exclusively in digital wallets or accounts. They're transmitted electronically between entities, differing from traditional cash or coins.
• Decentralized Nature: Many digital currencies function within decentralized networks, free from control by any central authority like governments or financial institutions. Transactions are validated and documented on a public ledger called a blockchain.
• Transaction Utility:
  • Digital currencies find utility in various transactions, including online purchases, international money transfers, and investment activities.
  • They also serve as investments or stores of value.
• Volatility:
  • Digital currencies exhibit high volatility, experiencing rapid value fluctuations within short timeframes.
  • This volatility poses investment risks and challenges their stability as a reliable store of value.
• Examples encompass Bitcoin, Ethereum, Litecoin, and Ripple.

Blockchain

• Blockchain serves as a digital ledger that meticulously records each transaction associated with a specific digital currency.
• Every transaction is precisely time-stamped and permanently appended to the blockchain in an unalterable manner.
• Decentralization characterizes blockchain technology, indicating that no single entity or authority governs it. Instead, every network participant possesses a copy of the ledger, enabling independent verification of transactions.
• The blockchain consists of interconnected "blocks" of transactions, linked together in a "chain" through cryptographic techniques. This linkage establishes a secure and tamper-resistant history of all digital currency transactions.
• Verification of each transaction within the blockchain necessitates validation by multiple network participants. This verification process ensures transaction legitimacy and safeguards against fraudulent activities.