Cryptocurrencies and Pakistan

In Blog, Economic Security, National Security
November 17, 2021
Abdul Aziz
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Virtual currencies like Bitcoin are making inroads in Pakistan and they are entering into the Pakistani economy. Today, virtual currencies are being touted as the future of finance as the world moves from banknotes to virtual money. However, the Government of Pakistan despite cryptocurrency’s popularity in the country has so far refused to regulate its

Virtual currencies like Bitcoin are making inroads in Pakistan and they are entering into the Pakistani economy. Today, virtual currencies are being touted as the future of finance as the world moves from banknotes to virtual money. However, the Government of Pakistan despite cryptocurrency’s popularity in the country has so far refused to regulate its flow. This lack of regulation is not just causing economic loss to the exchequer but it is providing room for illegal activities to occur on unregulated platforms. It is time for Pakistan to form clear policies on cryptocurrency or else virtual currencies in the country will be difficult to manage.

Presently, there are more than 100 countries around the world that use cryptocurrency, and their popularity is only growing with time. Cryptocurrency as the name suggests is a form of virtual currency that is cryptic. Cryptography, the technology which is used to make bitcoin makes it nearly impossible to counterfeit or double-spend cryptocurrency. And there are various types of cryptocurrencies in circulation but some of the more famous ones are, Ethereum. Binance Coin, Solana, Cardano and Bitcoin. All of these virtual currencies are based on blockchain technology.

Blockchain technology is essentially a database that stores all information regarding the usage of cryptocurrency into a single financial ledger. Bitcoin was the first cryptocurrency that used blockchain technology which is now widely used by all virtual currencies. Blockchain technology is one of the biggest strengths of crypto as all transactions are verified by all users mining bitcoins. Blockchain gives cryptocurrency its real strength and separates it from all other forms of currencies.

Cryptocurrencies are also a decentralized chain of networks which means that the currency is not regulated by the one single body. Usually, all currencies are regulated by states bank of different respective countries but since cryptocurrencies are semi-autonomous, no single regulator is controlling them. It is for this reason that some states around the world have been hesitant in giving up state control of their currency like China, where bitcoin and all virtual cryptocurrencies are banned. On the other hand, some countries like Vietnam, the Philippines, Turkey, and Switzerland have embraced cryptocurrency and used it to their advantage.

However, there are certain fears and disadvantages that virtual currencies like Bitcoin bring to the table. Since Bitcoin is semi-autonomous, they are well suited for various illegal activity such as money laundering as well as tax evasion. This is one of more primary reasons, Pakistan has opted not to regulate cryptocurrency. The Government of Pakistan hasn’t given an official statement on it; however, some government officials have referred to money laundering and Pakistan’s responsibilities under FATF as primary reasons for a lack of regulation.

However, it is important here to point out that while cryptocurrencies may have their disadvantages, they are a relatively poor choice for conducting illegal business. Blockchain technology due to its strong database leaves a trail of evidence which can help authorities around the world to arrest and prosecute criminals. Bitcoin also has very low transaction costs which can make the transfer of large amounts quite easy and convenient.

Another huge advantage of virtual currencies like Bitcoin is that they have a cap on the number of bitcoins they will eventually produce. This cap on virtual currency can prevent inflation and due to its cryptic nature, it also prevents manipulation. Today, there are 18.8 million bitcoins which are worth a total market cap of 1.2 trillion US dollars, and there will only be 21 million bitcoins that will exist in its lifetime. Cryptocurrencies take full advantage of the technological revolution and as the way the world is heading towards more automation and artificial intelligence, virtual currencies are likely going to be future-proof.

Even if virtual currencies are not adopted per se by a country like Pakistan, their regulation can make it easier for people to trade and invest in cryptocurrency as well as provide taxation for the Government of Pakistan. There have been legal cases in Lahore and Karachi High Court about cryptocurrencies and their regulation, but the legal system has its limitations. It is the mandate and prerogative of the Government of Pakistan to make policy on virtual currencies. The court may provide some individual and temporary relief but it is up to the state to decide the future of cryptocurrencies

According to a statistic, Binance, a crypto exchange, is one of the most downloaded apps in Pakistan. Despite a virtual ban on cryptocurrencies, people are using offshore wallets like Neteller, Skrill, and Payoneer to invest and trade in crypto for profits. These unregulated platforms that people are using are far more likely to encourage money laundering than regulated ones. They also provide zero protection to Pakistani investors further creating room for fraud and misuse.

The crypto economy today is over 2 trillion dollars and some countries are investing in it and taking advantage of the economic boom it provides. Stacks, a US-based blockchain company donated 5 million STX tokens to LUMS as a donation which are now worth 10 million dollars. A regulated crypto market would also invite virtual currencies to come to Pakistan and ease international transactions for its citizens as well generate inbound investments and capital.

Cryptocurrencies have arrived in Pakistan and with their growing influence, it is likely to get bigger in the next few years. The regulation of virtual currency is going to prevent its misuse and provide time for the state to understand and control its relative growth within the country. If we fail to regulate or enforce a strict ban like the Chinese government, virtual currencies won’t cease to exist in the future but they will be near to impossible to control.