5.2 Digital currency

| Candidates should be able to:                                                                    | Notes and guidance                                                                                                  |
| ------------------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------- |
| 1 Understand the concept of a digital currency and how digital currencies are used               | A digital currency is one that only exists electronically                                                           |
| 2 Understand the process of blockchain and how it is used to track digital currency transactions | Blockchain, in its basic form, is a digital ledger, that is a time-stamped series of records that cannot be altered |

Draw and annotate a diagram to show how a payment transaction is made using digital currency and blockchain.

Digital ledger shown
Device encrypting data
Device sending data to digital ledger
Payment being recorded on digital ledger
... including details such as digital signature/time/date stamp
Payment being sent from digital ledger to recipient

## Features of digital currency
- Digital currency can be used to pay for products and services.
- Digital currencies are often tracked using digital ledgers.
- Only exists electronically
- Can be a decentralised system
- Can be a centralised system
- Usually encrypted

### Identify the process that uses a digital ledger to track the use of digital currency.
- blockchain

A digital currency does not exist **physically**, it can only be accessed electronically. Some digital currencies have digital ledgers called a **blockchains**. These are decentralised databases where each transaction is stored as a new set of data with a **time-stamp** and is linked to the previous set of data. This means that transactions cannot be altered, only new transactions added, which allows the location of the data to be **traced**.