Cambridge O Level Computer Science · Syllabus 2210 · The Internet and its Uses
Digital Currency
What is Digital Currency?
A digital currency is a currency that exists only in electronic form, with no physical notes or coins; it is stored, transferred and used entirely through computer systems, which is what distinguishes it from an ordinary currency being paid electronically.
This definition is part of the The Internet and its Uses chapter in Cambridge O Level Computer Science.
Digital Currency in context
The internet is the worldwide infrastructure of interconnected networks. The world wide web is the collection of websites and web pages that is accessed using that infrastructure. When you type a URL, the browser separates out the domain name, asks the domain name server (DNS) to turn it into an IP address, sends an HTTP or HTTPS request to the web server at that address, receives HTML and other resources back, and renders the page on your screen. Along the way the browser may store cookies. The same infrastructure carries digital currency transactions, which a blockchain records as time-stamped, hash-linked blocks so that a change to an old record is detectable. And because everything above is reachable from anywhere, Topic 5 finishes with the cyber security threats that exploit it and the layered solutions that reduce them.
A digital currency is a currency that exists only electronically. It has no physical notes or coins anywhere; the currency is the set of electronic records. It is held, transferred and used through computer systems, and can be exchanged for goods, services or other currencies wherever it is accepted. The point that is examined is the contrast: paying for something with a debit card moves ordinary money electronically, and ordinary money also exists as notes and coins — so the debit card is a payment method, not a digital currency.
Common mistakes with Digital Currency
- M11 — "All digital currency is cryptocurrency." Why it is wrong Cryptocurrency is one kind of digital currency — one that uses cryptography and typically a blockchain, and is often not centrally issued. Other digital currencies are issued and controlled centrally. Nor are they all anonymous: a public ledger shows every transaction, with identities behind identifiers rather than absent. Say instead "A digital currency exists only electronically; cryptocurrencies are one type of digital currency."
- M12 — "Paying by card or by phone means you are using a digital currency." Why it is wrong These are payment methods that move an ordinary currency — one that also exists as physical notes and coins. The test is whether the currency itself has any physical form. Say instead "A card payment transfers an ordinary currency electronically; a digital currency has no physical form at all."
Examiner tips on Digital Currency
- This chapter gives no financial advice. Topic 5 asks you to explain what digital currency is and how the record is kept. It never asks whether any currency is a good thing to own, what it might be worth, or how to obtain one — and an answer that strays into that territory earns nothing. Keep every answer descriptive and technical.