Digital currency exists only electronically
A digital currency is money that exists only in electronic form — no physical notes or coins. It is held and moved through computer systems, is usually encrypted, and transactions are made electronically between digital wallets. It can be centralised (one authority, e.g. a central bank, controls it) or decentralised (no single authority; the network verifies transactions). The most commonly credited feature is decentralised.
Blockchain is a digital ledger
Blockchain is the technology used to track digital-currency transactions. In its basic form it is a digital ledger: a time-stamped series of records (a chain of blocks) that cannot be altered. It is decentralised — a copy of the whole chain is held on every node, not one central server. A payment is recorded inside a block, which is added to the chain on every node, so all share the same record.
What a block stores, and the chain link
Every block stores four things: (1) the transaction data (often with a digital signature and time/date stamp); (2) a hash — a value from the block's contents that is its unique identifier; (3) the previous block's hash, which links each block to the one before it to form the chain; (4) a timestamp. The first block has no previous-hash. When full, a block is added to the blockchain and copied to every node.
Drawn from real examiner reports.
Digital currency is not just "online money"
The mark-scheme definition is precise: a digital currency only exists electronically — no physical notes or coins — is usually encrypted, and can be centralised or decentralised. "Money you use online" scores zero: a bank card still represents physical national currency. State the defining point — no physical form — and add that it can be decentralised.
Nov 2023 Paper 1 examiner report Q12(a): the most common credited feature was "decentralised". Vague "online money" answers do not capture the only-exists-electronically defining point.
Blockchain is not a digital currency
Treating blockchain and digital currency as the same, or calling blockchain "a type of cryptocurrency", loses marks. The currency is the money; the blockchain is the decentralised digital ledger that records and tracks its transactions. Two-element definition: a chain of blocks whose records are time-stamped and unalterable.
Nov 2023 Paper 1 mark scheme Q12(b): "Blockchain" is the named process for tracking the transactions — i.e. it is the ledger technology, not the currency itself.
Not all digital currency is decentralised
Do not assume every digital currency is decentralised. The syllabus accepts both: a centralised currency is controlled by a single authority (e.g. a central bank); a decentralised one has no single authority — the network of nodes verifies together. Decentralised is the most-credited feature, but define each by who controls and verifies it.
A block stores the previous block's hash
A block stores more than its transaction data. It also stores the previous block's hash, and that is what links the blocks into an ordered chain. Forgetting this loses the "how are blocks linked?" mark — the link is the stored previous-block hash, not the transaction data. A block also holds its own hash and a timestamp.
A hash is not the same as encryption
A hash and encryption do different jobs; blockchains use both. A hash is a one-way fingerprint of a block's contents that detects change — alter the contents and the hash changes. Encryption scrambles data so it is meaningless if intercepted. Do not give "it is encrypted" as why a block cannot be altered — that is the hash's job.
The ledger is on every node, not one server
Because it is decentralised, a blockchain is not stored on one central server — a full copy of the whole chain is held on every node. Saying "the blockchain is kept on one main computer" misses the point. This makes tampering hard: an attacker would have to change the copy on every node, not one machine.
Tampering: use the hash-mismatch chain
Tampering is caught by a chain: a block's hash comes from its contents; change the data and the hash no longer matches; the next block stores the old hash, so the link breaks and later blocks are invalid — so the change is detected.
Name the process, define in two parts
Asked what tracks transactions? Name it — blockchain. To describe it, give both elements: a chain of blocks whose records are time-stamped and unalterable. For a digital currency, give exists only electronically plus a feature like decentralised.
Describe recording a payment step by step
"Recording a payment" is step-marked: device encrypts the data → sent to the network → recorded in a block → block gets a hash and stores the previous hash → when full, added to the blockchain → copied to every node.
A digital currency is money that exists only electronically, and blockchain is the technology most often used to record and track digital-currency transactions safely. This topic is about two things the syllabus asks you to understand: (1) what a digital currency is and how it is used, and (2) how the blockchain process keeps a tamper-evident record of every transaction.
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