Cryptoassets are the most noteworthy technology the world has witnessed over the last two decades. Bitcoin was first introduced in 2008 and since then it has revolutionized the way payments were perceived globally. Today, after much speculation, many governments, organizations and individuals across the world are beginning to accept digital assets and Blockchain technology as the future of transactions.
Pakistan is no different. With a population of about 228 million people according to UN estimates from 2022, the country has nearly 9 million investors with a portfolio of Cryptoassets. Nationals from Pakistan have invested nearly $20 billion in Cryptoassets as of 2021. According to the Global Crypto Adoption Index, Pakistan ranks third behind India and Vietnam during the period of 2020-21 for crypto adoption.
Although the State Bank of Pakistan has at present declared that cryptoassets are not legal tender “issued or guaranteed” by the country’s government, public interest and investment in the digital tokens continues to grow exponentially.
This begs the question, what is stopping the government from regulating these assets when they clearly depict a huge opportunity not just from a financial perspective, but also from a technological angle as well? Regulated markets see significant gains in technological and socio-economic growth through the creation of adjacent industries, empowered entrepreneurs and new skills requirements.
New talent flows are developed from universities along with the creation of specialized education centers, all which contribute to a beneficial rise in economic activities. By unlocking these pools of capital, the community is further improved and developed through new jobs and wealth creation.
Pakistanis continue to utilize gray channels to increase their investments in Cryptoassets as these have emerged as crypto is the best performing asset class in the last few years.
The amount invested by individuals in the country in terms of digital assets represents a significant chunk of the GDP that the government can leverage to extract tax and other regulatory benefits from, while enabling it to monitor these transactions for illegal activities.
Sixty-seven percent investors use centralized financing while the remaining utilize decentralized services for crypto-related transactions. Since debit and credit cards cannot be used to process crypto payments, peer to peer (P2P) transfers, where money is transferred directly from buyers to sellers, is a preferred channel for Pakistani investors. In these cases, crypto exchanges act as escrow services to minimize financial risks for both parties
At present, there are no registered crypto exchanges in Pakistan. As a result, nationals from the country use P2P transfers in order to purchase these digital assets.
One of the main concerns of the government and regulatory bodies is that being on the Financial Action Task Force (FATF) watchlist, Pakistan needs to ensure that its various channels are not used for money laundering and terrorist financing. This makes the authorities skeptical about legalizing Cryptoassets and subsequent exchanges in the country.
While fraud is not a reflection of the industry itself, it is indeed the certain outcome of absent regulations. There are legal means to tackle this challenge. Australia, for instance, is a country which has adopted a progressive approach to cryptoassets.
The tokens are treated as legal tender in the country since 2018 and classified as property, making them subject to Capital Gains Tax. Exchanges are required to register, identify and verify users, maintain records and comply with government anti-money laundering reporting obligations. Therefore, the country’s crypto market has grown under regulatory supervision.
We have seen in the past that Pakistan has been a late adopter of many technological innovations and consequently late in leveraging the enormous benefits resulting from these. From customer service markets to data connectivity, the slow regulatory and legal response has enabled other countries to take an edge over us in the past.
The establishment of international call centers is a prime example, where we got into the field much later than other Asian countries like India and the Philippines. The situation at present is similar with cryptoassets. Fortunately, the window of opportunity is still open, considering the values currently invested in digital assets across the country.
Through regularization and registration of crypto exchanges, Pakistan can reap the benefits of rapidly expanding fintech space that is touted to be the future of finance globally. Blockchain, the underlying technology behind all cryptoassets, is a revolutionary transactional channel based on the distributed ledger technology that makes payments rapid, secure and seamless between long distances.
This technology is already being implemented within payment spheres globally and has significant potential to advance necessary financial inclusion for the unbanked living in Pakistan who currently total upwards of 100 million citizens.
It is estimated that banks can save close to ten billion dollars annually from utilizing Blockchain. Similar volumes can fall into the natural reserves from the investments being made in cryptoassets. However, there is a need to act proactively and grab the opportunity while it is still there. Registering crypto exchanges today can carve a path for progress that can turn into one of the most lucrative avenues for the future of finance in Pakistan.
(The writer is a technology researcher who closely follows developments in the fintech space. The views expressed in this article are not necessarily those of the newspaper)
Copyright Business Recorder, 2022