Pakistan's Bitcoin boom: fact or fiction?
Bitcoin (BTC) is a topic that warrants polarised responses across the globe, Pakistan being no exception to this. You could be a hardcore proponent of an utopian world in which finance is unconstrained by borders and central authorities or a furious dissenter that believes it’s all a big fat scam (as Ponzi schemes like OneCoin have proved in the past). However, what we can observe in Pakistan is the emergence of a middle ground. While we do have our feverish supporters and dissenters of the crypto currency, there is a rise in investors who are dabbling in Bitcoin and Ethereum to diversify their portfolios or to make a quick buck.
Pakistan’s Bitcoin boom has also been spurred by the rise of online investors, most notably Waqar Zaka, who the Khyber Pakhtunkhwa (KP) government has hired as an official digital asset and crypto-mining advisor. Additionally, the KP government has announced its plans to build two hydro-electric-powered mining vicinities. The nation’s undeniable crypto craze is also evident in the fact that Binance, a crypto currency exchange platform, is currently the fourth most downloaded app in Pakistan. But do our rookie investors really know what they’re getting themselves into?
Bitcoin founder Satoshi Nakamoto did something unusual relative to our central banks – he programmed the currency’s algorithm to cap at 21 million, after which point, no more Bitcoin can be circulated.
Once every four years or so, Bitcoin algorithm reduces the profit that it pays miners by a half. This means that the rate at which new Bitcoin is released into circulation is also cut in half, which enables the cryptocurrency to combat inflation, which in some investors’ eyes, makes it a safer bet than traditional currencies. This is one of the many debates used to dissociate BTC from central banks, which resort to printing vast amounts of money in times of crisis, leading to inflation and chaos.
Bitcoin and its blockchain record transactions by linking computers across the globe which have Bitcoin’s code downloaded on them. This code contains Bitcoin’s entire transaction ledger. Anyone can add their computer to the network, but the mining process requires high amounts of energy to solve complex mathematical problems, which is why miners tend to allocate separate hardware to the process.
If you were to buy Bitcoin, you would need to store it on a crypto wallet (Binance’s has proved to be the most popular in Pakistan). You can create a software wallet (digital wallet with a platform like Binance or Coinbase) or use a hardware wallet (like the Ledger Nano) that fits into a USB port. When you create/purchase a wallet, you are given a set of private keys made of 12 random words, which if you forget or lose, cost you your entire crypto portfolio.
Given that every computer in the Bitcoin network can see every transaction through the ledger (note: they can see that the transaction has occurred, not who has carried it out) the system is difficult to tamper with and not as susceptible to hacking as rumours suggest. If anyone were to try to engage in a false transaction or try to amend an existing one, the worldwide network of computers (also known as nodes) would reject it.
The pros of Bitcoin
Irrespective of Zaka’s extremely cringe-worthy tweets, he isn’t wrong about some of the benefits of crypto-currency. For one, it can prove to be more reliable than some traditional fiat currencies. This is why there was a spike in demand earlier this year for salaries and wages to be paid in BTC in Lebanon as the Lebanese Lira deprecated. Additionally, if you know how to operate around the market and are willing to wait out the turns on the roller-coaster, you can make extremely high returns in short periods of time – one of Zaka’s key selling points.
Additionally, transactions are borderless and almost immediate due to a lack of state bank intervention. However, you must declare your crypto assets to the FBR in Pakistan and pay taxes according to returns you make. Using Bitcoin to launder money out of Pakistan will of course leave you under FIA scrutiny as per the 1947 Foreign Exchange Act.
While Bitcoin has outperformed commodities like gold during the pandemic, potential investors need to acknowledge the digital asset’s volatility. Bitcoin is still perceived as a relatively new asset class, which means that its fluctuations are unlikely to stop until all 21 million coins are in circulation and until BTC can be used for more day-to-day transactions. Furthermore, Bitcoin is highly vulnerable to pump and dump schemes, such as Elon Musk’s decision to end payments for Tesla cars in BTC due to “environmental concerns.”
Bitcoin’s anonymity supposedly frees people of the dictatorial scrutiny of state banks and central financial authorities. However, this has enabled the cryptocurrency to be used in exchange for black market activity, particularly drugs and other illicit purchases on the dark web.
Pakistan’s growing crypto-cult and its clash with the state
The easily accessible user interfaces of crypto trading platforms, coupled with the advice of Pakistani crypto influencers, has attracted a mass of investors. Zaka in particular targets housewives as young children who cannot make bank accounts as a part of a ‘female and youth empowerment’ initiative, charging 1200 PKR per month for admission into his Facebook group, where he shares trading tips. Additionally, Zaka advertises crypto-trading as a sood (interest) free means of generating income.
Irrespective of the immense potential within the asset class, the State Bank of Pakistan has announced a flimsily enforced ban on crypto trading, highlighting either its distrust of the system or its unwillingness to adapt to an undeniable future reality for the world. As a result, more Pakistanis are resorting to Neteller and Skrill (foreign wallets), wherein money launderers abroad foot in payments offshore in exchange for PKR locally. In essence, Pakistan’s legislation and policies need to become more definitive and embracing of the crypto paradigm to create more opportunities for its citizens.