When the word “crypto” pops up before anyone, the first impression it often casts is that of mystery and innovation. For many, it conjures images of Bitcoin and other cryptocurrencies, blockchain technology, and the promise of a decentralised financial future. Owing to such a belief, the crypto community is considered to be diverse and vibrant, with enthusiasts ranging from tech-savvy developers to casual investors.
Tracing back to its inception, the most well-known cryptocurrency was created in 2009 by an anonymous entity known as Satoshi Nakamoto. Since then, thousands of alternative Bitcoin cryptocurrencies, commonly referred to as “altcoins”, have been developed, each with its unique features, purposes, and underlying technologies.
The Double-Edged Sword of Cryptocurrency
Cryptocurrencies are primarily used as a medium of exchange, a store of value, or a form of investment. They offer several benefits, including lower transaction fees, faster transfer times, and increased privacy. However, they also present risks such as high volatility, regulatory uncertainty, and potential for misuse in illegal activities.
As the digital economy continues to grow, cryptocurrencies are gaining wider acceptance, with some companies and financial institutions beginning to adopt them for payments, investments, and other financial services.
People might think of the volatility of crypto markets, the potential for high returns, and the stories of early adopters who became millionaires. Others might associate it with the complexity of understanding how it works, the security concerns, and the regulatory challenges it faces.
Key Points on How This Currency Functions
People might think of the volatility of crypto markets, the potential for high returns, and the stories of early adopters who became millionaires. Others might associate it with the complexity of understanding how it works, the security concerns, and the regulatory challenges it faces.
- Blockchain technology uses a decentralised ledger to record transactions, verified by multiple nodes for transparency and security.
- Cryptographic encryption secures transactions and controls the creation of new units, with public and private keys managing fund transfers.
- Proof of Work (PoW) involves energy-intensive problem-solving to validate transactions, while Proof of Stake (PoS) selects validators based on staked coins for greater energy efficiency.
- Peer-to-peer transactions bypass intermediaries, with network nodes verifying them through consensus mechanisms.
- Digital wallets, which can be online or offline, store cryptocurrencies, and private keys are crucial for accessing these funds.
- Cryptocurrencies operate without a central authority, relying on a distributed network of nodes for resilience against censorship and fraud.
- Smart contracts are self-executing and secure transactions, with Ethereum being a key platform for decentralized applications.
- Cryptocurrency values fluctuate based on supply and demand, with prices exhibiting high volatility.
- Cryptocurrencies support online and offline payments and speculative investments, while De-Fi platforms provide financial services without intermediaries.
- Global regulatory approaches vary from acceptance to bans, with crypto businesses needing to comply with AML and KYC regulations.
Proposed Strategies: Registration & Due Diligence
Cryptocurrency is increasingly making waves in Pakistan’s financial scene, reflecting a growing trend in the country. As its popularity rises, the government is starting to recognize the need for regulatory frameworks. Pakistan, with a population of approximately 250 million, faces widespread poverty but remains hopeful for improved economic opportunities.
Although there is no regulated exchange as of now, Bitcoin usage is on the rise across Pakistan. This growing acceptance highlights the need for regulatory measures suited to the region’s context.
On November 6, 2020, Pakistan’s Securities and Exchange Commission (SECP) took a proactive step by releasing a paper outlining potential regulatory approaches for cryptocurrencies. In collaboration with the Financial Action Task Force (FATF), the SECP is seeking public feedback. The SECP’s approach is practical, aiming to benefit from digital assets and innovation while avoiding excessive regulation.
One proposed strategy includes registering Initial Exchange Operators and implementing strict due diligence processes. This could lead to public offerings in capital markets through security tokens, reflecting Pakistan’s effort to balance innovation with sensible regulation.
Govt’s Stance on Future Legalisation
Cryptocurrencies like Bitcoin are not officially regulated in Pakistan, but they are not deemed illegal either. (sourced statement)
- December 2020: The Khyber Pakhtunkhwa government passed a resolution supporting the legalization of cryptocurrency, marking the first regional push for legal recognition of digital currencies in Pakistan.
- January 2021: The State Bank of Pakistan had not authorised any entities for the sale, purchase, or investment in virtual currencies. The Federal Investigation Agency’s (FIA) Cyber Crime Wing has made several arrests related to Bitcoin and cryptocurrency mining on charges of money laundering. Despite these enforcement actions, some Pakistani bloggers and social media influencers actively traded Bitcoin and advocated for clearer cryptocurrency regulations.
- January 2022: The State Bank of Pakistan proposed a ban on cryptocurrency and blockchain-related activities in response to concerns over illegal digital currency transactions and compliance with FATF regulations.
- May 2023: Pakistan announced a comprehensive ban on cryptocurrency and blockchain-related activities, reinforcing the restrictions initially proposed in January 2022. The government confirmed that cryptocurrency would not be legalised, with the finance minister stating that legalising cryptocurrency is impractical due to FATF’s stringent requirements on money laundering and terrorism financing.
Cryptocurrency usage, including Bitcoin, has seen a significant rise in Pakistan despite the absence of a formal regulatory framework. Many Pakistanis are turning to peer-to-peer platforms like Binance and Paxful, as well as other over-the-counter (OTC) trading methods, to engage in crypto transactions.
In 2020, the Securities and Exchange Commission of Pakistan (SECP) published a paper outlining potential strategies for regulating cryptocurrencies within the country.
Additionally, the State Bank of Pakistan issued a public notice clarifying that cryptocurrencies are neither recognised as legal tender nor has the SBP authorised any entity or individual to issue or operate in virtual currencies.
Pakistan currently ranks sixth in the global crypto adoption index, with a market value between USD 18 to USD 25 billion despite ongoing regulatory challenges.
The rising interest in Bitcoin can be attributed to the country’s high inflation rate, which has been exceeding 25% annually and worsening due to ongoing political instability.
‘For and Against’ Cryptocurrency Legalisation: The Final Showdown
In this regard, the most common questions that may transpire before you would be:
- What factors influence government decisions on regulating or banning cryptocurrencies?
- How do regulatory decisions impact the adoption and growth of cryptocurrencies in a country?
- What role do enforcement actions play in shaping the public perception of digital currencies?
- How do international financial regulations, such as those from FATF, affect national cryptocurrency policies?
- What are the common arguments for and against the legalisation of cryptocurrencies?
- How do bans on cryptocurrency and blockchain activities impact businesses and individuals involved in these sectors?
- What are the potential long-term effects of cryptocurrency regulations on a country’s financial technology sector?
To answer these questions, it can be voiced that “channelling your focus and energy into achieving your financial goals, you lay the groundwork for a life rich with purpose and fulfilment”. At its core, finance is often perceived as a means to generate wealth. However, this can be a challenge to us as it urges us to look beyond mere profit-making.
As cryptocurrency continues to gain prominence globally, Pakistan has found itself at a crossroads regarding its approach to digital currencies. With various stakeholders involved and diverse interests at play, the regulatory landscape for cryptocurrencies in Pakistan is complex and evolving.
Government decisions regarding the regulation or banning of cryptocurrencies are influenced by several factors. Economic stability is a primary concern; governments worry that cryptocurrencies could undermine traditional financial systems and lead to financial instability. As digital currencies operate outside conventional banking systems, they pose risks that might disrupt monetary policies and economic stability.
Security is another critical factor. Cryptocurrencies are often associated with risks such as money laundering, terrorist financing, and other illicit activities. Governments need to address these concerns to prevent their financial systems from being exploited by illegal actors.
The public interest also plays a crucial role. Regulators must balance the potential benefits of innovation with the need to protect consumers from fraud and other risks. Ensuring that the public is shielded from scams while fostering technological advancement presents a delicate challenge.
Lastly, international pressure impacts regulatory decisions. Pakistan, like many other countries, is influenced by international standards and recommendations from bodies such as the FATF. Although FATF does not mandate a ban on cryptocurrencies, countries are encouraged to implement measures to address financial crimes related to digital currencies. Adhering to these recommendations helps maintain international credibility and avoid economic sanctions.
