Cryptocurrency: A Legal Perspective on a Misunderstood Technology

If we apply the aforesaid definition to a simple cryptocurrency transaction, where the two parties involved in the exchange of value are the payer and beneficiary, and the mining of blocks to validate the transaction between these two parties, this effectively serves as a clearing mechanism which triggers the settlement upon which the funds in question are then transferred from one party to another.

Tatva Legal, Hyderabad has an experienced team of corporate lawyers who, amongst other services, advise on niche areas of law involving crypotocurrency, blockchain technology, AI and machine learning and other such areas involving  information technology law.

Cryptocurrencies are a digital representation of value (i.e., virtual currencies) that use cryptography and specific mathematical algorithms to encrypt information that can only be deciphered by someone who possesses a secret digital key.[5] They are also decentralized, meaning there is no central authority where records of transactions are maintained.  Instead, transaction data is recorded and shared across multiple distributor networks, through independent computers.  This technology is what is known as blockchain – a type of “distributed ledger technology” that can record and share data across multiple data stores (ledgers), each of which have the exact same data records and are collectively maintained and controlled by a distributed network of computer servers, which are called nodes.[6] It is important to draw a distinction between cryptocurrencies and blockchain technology, especially in terms of the regulatory framework applicable to them. While cryptocurrencies employ blockchain technology, blockchain technology itself has numerous possible uses, independent of cryptocurrencies.

With the basic distinction between cryptocurrencies and blockchains established, we can now attempt to identify a suitable legal definition for cryptocurrencies based on the legal framework currently existing in India.

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