💻 Paper 1 · Topic 5: The Internet & Its Uses
5.2 Digital Currency & Blockchain
Cambridge IGCSE Computer Science 0478 · ~12 min read · ⭐ Pro

What is Digital Currency?

Digital currency (also called cryptocurrency) is a form of money that exists only in electronic form. It is not issued or controlled by any central bank or government. Bitcoin and Ethereum are well-known examples.

  • Transactions are made directly between users (peer-to-peer) without a bank acting as an intermediary
  • Transactions are recorded on a blockchain — a public, distributed ledger
  • Currency is created by mining — using computers to solve complex mathematical problems

Blockchain

A blockchain is a distributed, decentralised digital ledger that records transactions across many computers in a secure and transparent way.

Key properties of a blockchain:

  • Distributed — copies are held on many computers simultaneously (nodes), not one central server
  • Decentralised — no single authority controls it
  • Immutable — once a block is added, it cannot easily be altered without invalidating all subsequent blocks
  • Transparent — all transactions are visible to all participants
  • Secure — each block contains a cryptographic hash of the previous block, linking them together

How a block is structured:

FieldContents
Transaction dataDetails of one or more transactions (sender, receiver, amount)
TimestampWhen the block was created
HashA unique fingerprint/code of this block's data
Previous hashThe hash of the preceding block — links the chain together

Why is blockchain difficult to tamper with?

If any data in a block is changed, its hash changes. This breaks the link to the next block, which then also needs to be changed, and so on — causing changes to cascade through the entire chain. Because the blockchain is distributed across thousands of computers, any tampered version would be rejected by the majority of nodes.

Mining

Mining is the process by which new transactions are verified and added to the blockchain. Miners compete to solve a complex mathematical puzzle. The first to solve it adds the new block and is rewarded with cryptocurrency.

  • Requires significant computing power and electricity
  • Makes fraudulent transactions extremely costly

Advantages and Disadvantages of Cryptocurrency

AdvantagesDisadvantages
No need for a central bank/middlemanVery volatile — value can change rapidly
Fast international transactionsHigh energy consumption from mining
Lower transaction feesUsed for illegal transactions (anonymity)
Secure and transparent ledgerNot widely accepted as payment
Accessible to unbanked populationsRisk of permanent loss if wallet is lost
Exam tip: Know the four key properties of blockchain: distributed, decentralised, immutable, transparent. Explain WHY tampering with a block is difficult — the cascade effect on hashes and distributed verification are key marks. Also be able to state what mining achieves.
⚠️ Common Mistakes
  • Saying blockchain "cannot be hacked" — it is very difficult to tamper with, but not completely impossible
  • Confusing the blockchain with Bitcoin — blockchain is the underlying technology; Bitcoin is one application of it
  • Forgetting that mining requires large amounts of computing power and energy
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Worksheet — Digital Currency & Blockchain

5 questions · 10 marks

Q1State two characteristics of a blockchain. [2]
✅ Mark scheme
Any two: Distributed (copies held on many computers) [1]; Decentralised (no single controlling authority) [1]; Immutable (records cannot easily be altered) [1]; Transparent (all transactions visible to participants) [1]
Q2Explain why it is difficult to tamper with records stored on a blockchain. [3]
✅ Mark scheme
Each block contains a hash of the previous block [1]; changing one block changes its hash, which then invalidates all subsequent blocks [1]; because the blockchain is stored across many computers (distributed), a tampered copy would be rejected by the majority [1]
Q3Describe what is meant by 'mining' in the context of cryptocurrency. [2]
✅ Mark scheme
Mining is the process by which new transactions are verified and new blocks are added to the blockchain [1]; miners solve complex mathematical puzzles, and the first to succeed adds the block and receives a cryptocurrency reward [1]
Q4State one advantage and one disadvantage of using cryptocurrency for transactions. [2]
✅ Mark scheme
Advantage: No central bank/middleman needed / faster/cheaper international transfers [1]; Disadvantage: High volatility in value / high energy consumption / used for illegal activity [1]
Q5State what the 'previous hash' field in a blockchain block is used for. [1]
✅ Mark scheme
The previous hash links the block to the one before it, forming a chain — if any earlier block is changed, this field will no longer match, revealing the tampering [1]
Quiz — Blockchain & Digital Currency
Q 1 of 8
Score
/ 8
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TermDefinition
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Mini Test — Blockchain

10 minutes · mixed marks

← 5.1 Internet & WWW Topic 5: Internet & Its Uses Next: 5.3a Cyber Threats →
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