Since the inception of mankind, many new technologies have launched with a great hype. Blockchain and Bitcoin are examples of the 21st century revolutionary technologies. It seems like that the world has suddenly driven itself to the future as it is now seen that nations have started to adopt a digital asset known to many as cryptocurrency — the world’s newest medium of exchange. The best way to describe cryptocurrency is as the digital currency, thinking of the many different types of cryptocurrency as currencies with different utilities.
Cryptocurrency is a form of digital asset based on a network that is distributed across a large number of computers. This decentralized structure allows them to exist outside the control of governments and central authorities. The one quality that they all share is that they contribute to the creation of a richer digital experience.
The challenging part is understanding that cryptocurrency fluctuates rapidly and can be volatile — effecting the interest of investors and micro-investors throughout the world who are looking for ways to diversify their portfolios of investment. Cryptocurrencies face criticism for a number of reasons, including their use for illegal activities, exchange rate volatility, and vulnerabilities of the infrastructure underlying them. However, many positive sides are attached to it. They also have been praised for their portability, divisibility, inflation resistance, and transparency.
Pakistan is one of the world’s top countries where many people have invested heavily in cryptocurrencies. Pakistan has seen a boom in trading and mining cryptocurrency, with interest proliferating in thousands of views of related videos on social media and transactions on online exchanges. Online cryptocurrency exchanges, most based outside Pakistan, have hundreds of Pakistani traders listed, some with thousands of transactions. Apps like Binance and Binomo, which track and trade cryptocurrency, have more downloads in Pakistan than some of the country’s largest banks’ apps. On another note, the federal government has set up a committee to study cryptocurrency regulation, which includes observers from the FATF, federal ministers, and heads of the country’s intelligence agencies.
Considering the financial global transformation, the Government of Pakistan should introduce digital rupee and legalize cryptocurrency under strict regulatory laws. Cryptocurrencies can make international payments more efficient, convenient and secure. So we need this digital asset in economic framework. The need to adopt to the digitization is that the world is changing and we need to keep up with it, financially and technologically.
Policy Recommendations: Effective Implementation of Cryptocurrency in Pakistan
- With the advancement in technology across the globe, the dynamics demand digital assets be licensed and registered.
- State Bank of Pakistan’s Treasury, Financial Crimes Enforcement Network and Securities and Exchange Commission of Pakistan should formulate comprehensive interpretive guidance regarding digital currencies, digital currency exchange and regulation act to administer and exchange these currencies under the State Bank’s act regarding Confidentiality / Secrecy. The framework for Digital Currency (Cryptocurrency) must provide a mechanism regarding Anti-Money laundering and policies to ensure Cyber Security and Consumer protection laws.
- Pakistan should join International Conventions & Frameworks for legal assistance in criminal matters such as Budapest Convention to ensure Pakistani citizens and interests are protected when conducting international transactions.
- A Committee of experts, Ulama community and religious bodies need to be set up to enlighten, explain, advocate, and discuss the perspective of Islamic laws regarding cryptocurrency.
- Government should create a new Federal Ministry for Digital Financial Services to regulate digital assets, rules, and guidance and enforcement actions. The new administrable body should promote the use of digital currency through advocacy, educating the masses, and working closely with stakeholders, policymakers, and regulatory bodies to formulate a framework that nurtures investment, innovation, economic development, and monetary benefits.
- Pakistan’s trade associations and consumers should formulate the Chamber of Digital Currency and Commerce to adopt a synchronized approach to actively develop policies to represent and gain the advantages of the digital asset and blockchain industry.
- The government of Pakistan should develop Digital Token platforms; these digital tokens contains digital resources that can be owned, transferred and redeemed by the consumers. These tokens represent multiple characteristics, including security, property, and they act like a currency or commodity. Digital tokens platforms can serve as an incredible representation of digital assets that offer multiple techniques to transfer the currency in a secure, efficient, and transparent way.
- Anonymity is the greatest challenge for the implementation of cryptocurrency in Pakistan. To overcome this threat, there should be proper registration of crypto accounts. A set of primary conditions should be imposed on the crypto users in which a crypto user will have to register his/her account on a government-issued website by their National Identity Card (NIC), photograph and thumbprints.. Further, those websites should be linked with National Database and Registration Authority (NADRA).
- There should be a proper mechanism for tax generation on crypto transactions and mining. It can be imposed that the crypto trade and transaction can only be made through government bank, which will make it traceable and can easily impose taxes. Government can also make rules regarding miners that they must register themselves before starting any mining-related activity and can easily impose taxes on them and have the data of all crypto users.
- Government can regulate cryptocurrency by creating their wallet and making it compulsory for crypto users to register and use it. It will make it easier for the government to monitor the transactions and apply taxes on them per transaction. In case of violation, there should be proper laws; in case someone violates these rules, then the crypto coins and all other assets related to cryptocurrency will be taken by the government so no one can think to violate these rules.
- Internet Service Provider (ISP) should be trained enough and have the resources to track those who are not registered and are involved in any activity related to cryptocurrency.
Last but not the least, State Bank of Pakistan’s Treasury, Financial Crimes Enforcement Network and Securities and Exchange Commission of Pakistan should formulate comprehensive interpretive guidance regarding digital currencies, digital currency exchange and regulation act to administer and exchange these currencies under the State Bank’s act regarding Confidentiality and Secrecy. The framework for Digital Currency (Cryptocurrency) must provide a mechanism regarding Anti-Money laundering and policies to ensure Cyber Security and Consumer protection laws. Significantly, by introducing a comprehensive mechanism, Pakistan has already demonstrated significant improvement in countering money laundering and terror financing under the umbrella of its states institutes and international watchdog (FATF). Further enforcement, improvement and monitoring of these laws through stakeholder coordination is required to track any illicit activity.