5.2 Digital currency

• Form of payment to pay for goods and services that only exists electronically
• They are not universally accepted as legal tender
• Examples: Facebook's Libra and China's DCEP

Cryptocurrency

• Decentralized
• Secured as it uses blockchain network and cryptography to maintain track of transactions
• Example: Bitcoin, Litecoin, Dogecoin

Blockchain

• In its basic form, is a digital ledger, that is a time-stamped series of records that cannot be altered
• Consists of multiple interconnected computers storing transaction data
• Hacking is impossible as transaction details are sent to all computers and data cannot be altered without all network members approval
• Every computer holds a complete copy of the entire blockchain
• Transactions are grouped together into blocks. Each block is created after collecting multiple verified transactions and contains the following components:
  • Data: Information in the block including senders, receivers, amounts, timestamps, digital signatures
  • Hash Value: Unique value generated by a cryptographic hash function
  • Previous Hash Value: Hash value of the preceding block in the chain
• Genesis Block: The first block, doesn’t have any previous hash value

Blockchain Process

• The user’s device encrypts the transaction data before sending it to the digital ledger
• The digital ledger records the transaction details such as digital signature, time, and date
• Once verified, the transaction is stored in a block with a unique hash.
• When the block becomes full or is executed, it is added to the blockchain
• The updated blockchain is then distributed to every device (node) in the network