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Cyber Security and Digital Currency: Question 4

Syllabus 5.2

Structured 5 marks

A cooperative of coffee farmers in three different countries is paid directly by an overseas roastery for each shipment, without a bank in every country processing the payment. The roastery pays the farmers using a digital currency, and each payment is added, in the order it happens, to a record that the cooperative and the roastery both keep a copy of.

(a) State what is meant by a digital currency. [1]

(b) Name the technology used to record and track digital currency transactions such as these payments. [1]

(c) Describe two features of this technology that make the payment record reliable. [2]

(d) Give one reason, other than avoiding bank fees, why it might benefit the farmers to be able to see the same payment record as the roastery. [1]

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Worked solution

Part (a): Digital currency

A digital currency is money that only exists electronically. It is not printed or minted as physical notes or coins, so it can only be held, sent and received using electronic systems.

Part (b): Naming the technology

The technology used to record and track digital currency transactions, such as the payments in this scenario, is a blockchain.

Part (c): Features that make the record reliable

  • Time-stamped ordering: every payment is added to the record with a time stamp, so the payments build up as a series of records in the exact order they happened, rather than being able to be reordered afterwards.
  • Records cannot be altered: once a payment has been added to the record, it cannot be changed or removed. This means neither the farmers nor the roastery can go back and secretly edit how much was paid, or claim a payment was never made.

Part (d): Benefit of a shared record

Because the cooperative and the roastery both keep a copy of the same record, each farmer, through the cooperative, can check for themselves that a payment was recorded correctly, rather than having to simply trust the roastery’s own statement of what was paid. This can increase confidence between the two sides, which matters when they are trading across three different countries without a shared bank to confirm the payment.

Final answers

  • (a) Money that exists only electronically
  • (b) Blockchain
  • (c) Any two of: time-stamped ordering of records; records cannot be altered once added
  • (d) Any reasonable reason, e.g. each side can independently verify the payment was recorded correctly