5.1 Digital Currency

Question 1

What is digital currency?

Answer 1

Digital currency exists purely in a digital format. It has no physical form unlike conventional fiat currency.
Traditional digital currencies are regulated by central banks and governments.

Question 2

What is cryptocurrency?

Answer 2

Cryptocurrency is a type of digital currency that uses cryptography to track transaction.
The cryptocurrency system works by being within a blockchain network which means it is much more secure.

Question 3

3. What is blockchain?

Answer 3

Blockchain is a decentralised database. All the transactions of networked
members are stored on this database.

Question 4

What are the advantages of blockchain technology?

Answer 4

When a new transaction takes place, all the networked computers get a copy of the transaction therefore it cannot be changed without the consent of all the network members. This effectively removes the risk of security issues such as hacking.

Question 5

Name three values created when a new transaction in cryptocurrency is created?

Answer 5

1. Data - for example, name of sender and recipient, amount of money, and so on
2. Hash value – a unique value generated by an algorithm (usually a cryptographic algorithm called SHA 256), which acts as a fingerprint
3. Previous hash value – this points back to a previous block in the chain

Question 6

Where can blockchain technology be applied?

Answer 6

1. Cryptocurrency (digital currency) exchanges
2. Smart contracts
3. Research (particularly within pharmaceutical companies)
4. Politics
5. Education.