Define Digital Currency



Define and discuss the following terms:


Digital Currency:
Digital Currencies are currencies that are "stored and transferred electronically".
Source


Virtual Currency:
Virtual Currencies are a type of Digital Currency, but it is not based upon an actual physical money source, Typically these are controlled by the creators and used by members of a specific virtual community (like a video game).
Source


Cryptocurrency:
Cryptocurrencies are also a type of Digital Currency, that uses encryption to have better security over the money and thus less likely to be counterfit.
Source



Discuss the following terms on how digital currency is processed which type of currency they work with:


Centralized Systems:
Centralized cryptocurrency exchanges are online platforms used to buy and sell cryptocurrencies. There needs to be a centralized "meeting point" where these currency exchanges meet to be able verify the other in a neutral point before approving the exchange.
Source


Decentralized Systems:
Means that the system for digital currency operates without a denctralized contraol. This can happen because cryptocurrencies can self-verify every transaction and thus have no need for a centralized system.
Source



Define and discuss the following terms related to cryptocurrencies such as Bitcoin:


Cryptography:
This is the backbone of cryptocurrency processing. It is the mathematical and computational practice of encoding and decoding data. It is a way of securing cryptocurrencies, and also creating new cryptocurrencies. One metephor for Cryptography and it's role with cryptocurrencies is to think of it as your personal signature. Its verifiable, counterfeit-pproof and secure from any possibility of denial by the signer at a later date.
Source


Blockchain Technology:
A decentralized, ledger for tracking records of cryptocurrencies. It is transparent to all users, allowing full, real-time access. Blockchain Technology consists of multiple blocks, each with 3 elements: Data (within the block), Nonce (32 bit randomly generated number), and Hash (256 bit number that starts with a lot of 0's). Nonce's create the hash, and from there the block is signed to the hash until it is mined. Miners create new blocks by finding the nonce that generates an accepted hash. For each block there are 4 billion possible combinations (32*256). When they find the nonce in a blockchain that references the previous block in the chain, miners have the golden nonce and their block is addded to the chain. When you manipulate one block you also have to manipulate all the blocks that come after. When it is mined and accepted the miner is rewared financially.
Source