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Summary IT A-Level, Covers all of topic 16 System life cycle
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IT A-Level, Covers all of topic 16 System life cycle, mostly for Cambridge students
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12 IT In Society12.1 Digital currencies
Electronic currency
It is a payment that occurs in digital form which doesn’t involve the exchange of physical
currency such as coins and bank notes. There are several types of electronic currency including:
digital currency
virtual currency
cryptocurrency
central bank digital base money
stored value cards
Digital Currency
It is the money that is available in a digital or electronic form. Currency is exchanged digitally
using computers instantly rather than exchanging physical bank notes and coins. Popular modes
of payment are through credit cards, mobile phones and smart watches. It allows easy
transaction across borders
Characteristics:
Uses:
Digital currencies can be either centralized, one that has a central body that is managing and
regulating the use of currency; or decentralized, one that doesn’t have a central body
managing the process. The most common way to manage the transactions with decentralized
systems is through the use of a ledger for exp; blockchain.
Centralized Systems:
credit/debit card: They can be used with card reading machines, they can either be
swiped and the magnetic strip can be read or they can be inserted in the machine for
the chip to be read. Another method is the contactless method where touching the card
to the computer/machine is only required for payment. In all cases data is read through
, preferred method by the computer and the bank is located from data. A request is sent
to deduct the required of money from the customers balance and transfer it to the
business’s bank account
electronic point of sale: EPOS is the computerized system used in shops to enter sales
information, handle customer loyalty programs, manage stock inventory etc. It’s
basically the checkout point where the customer transaction are done electronically
(pos involves payments made thru physical cash and record being maintained on register
books)
Decentralized Systems:
Bitcoin: A form of cryptocurrency that aims to eliminate the need for central authorities
such as banks or government. It makes use of blockchain technology to support p2p
transactions between users on a decentralised network
LiteCoin: A type of cryptocurrency created from the fork of the Bitcoin blockchain to
complete transactions quickly and cheaply. Its also p2p and decentralized.
peer to peer electronic monetary systems: This type of payment system is designed to
allow peers to send electronic payment to each other without the need for it going via a
central body, such a financial institution
Mobile Electronic Wallet:
It is a method of contactless payment that can be performed through a mobile or smart
watch connected to a mobile
User must download an app on device that stores the credit card information and other
required details
The device is then used as digital credit/debit card/ electronic wallet
It allows for payment of goods and services digitally
Data is read from device and request is sent to bank to transfer money from users bank
Process ( 4 marks):
User downloads app from finance provider
Registers with provider on app
Inputs phones in order to receive verification code via sms
User authenticates number when receiving verification message
User inputs credit card details or adds account details
This allows linking to bank account
, User authenticates payment details
Advantages of Digital Currency:
No need to carry physical money around
Provides fixed records of transactions
Incase of theft or lose of credit card or mobile/watch, the bank can be contacted to
block all monetary transactions
Use of contactless payment an speed up the payment process of goods and services
Digital currency allows international payments to be easily made in one currency to
another.
Contactless payment don’t require PIN number each time
Daily/monthly transaction limits can be sent which prevents over spending
Disadvantages of Digital Currency:
There is often a limit on contactless payments
Risk of data transaction getting hacked as data is sent electronically
There is a risk of being accidentally charged for someone’s transaction if you walk past a
machine that supports contactless payment
Risk of money being stolen through contactless payment as long as you are in the set
proximity that enables transactions to go through.
Virtual Currency
Virtual currency is a decentralized system. It only exists within a virtual environment and
doesn’t have a physical representation as bank notes and coins. An example of it would be
tokens that can be collected or purchased such within computer games; it allows user to
purchase new powers or clothing. For this reason, a virtual currency is normally specific to
games or applications for which it is created for can cannot be used elsewhere. Another
example of virtual currency is on streaming platforms where in app currency/ tokens can be
bought to purchase special effects messages that get displayed in real time on the video
stream.
, Advantages of Virtual Currency:
It can personalize game or application by making it fun to collect and spend the specific
virtual currency
It doesn’t have expensive manufacturing and physical storage costs
They can be programmed to complete automated transactions
It increases transaction seeds and eliminate geographical boundaries
Disadvantages of Virtual Currency:
It’s a decentralized system so has little regulation
Usually specific to the context for which it was created and can’t be spent elsewhere
Can be subject to scams
Cryptocurrency
The cyrptocurrency is a digital or virtual currency that is secured by cryptography which makes
it impossible to counterfeit or double spend. Many cryptocurrencies are decentralized networks
based on blockchain technology – a distributed ledger enforced by a disparate (differing)
networks of computers. They are also a type of peer to peer electronic monetary system. A
feature of it is that they are generally not issued by any central authority, making it immune to
government interference or manipulation. Bitcoin and LiteCoin are well known examples of it
Advantages of Cryptocurrency:
There are minimal fund transfer fees as compared to banks
It is difficult to counterfeit
Has potential for high returns so makes it a great investment
Disadvantages of Cryptocurrency:
The decentralised system allows a level of anonymity which can encourage criminal
activities that can go untraced such as money laundering and tax evasion.
It has high volatility and potential for large losses
Since its unregulated and not backed up, it is susceptible to cyber hacking
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