Cryptocrurrency: a revolution or…?
Exploring launching Pakistan’s own stable cryptocurrency is a good place to start thinking proactively
The writer has a business administration and marketing background and is an upcoming private entrepreneur in Islamabad. He can be reached at saad.gul2@gmail.com
The world is increasingly becoming reliant on technology for smart solutions, contracts and transactions. But state institutions in Pakistan appear to be frozen in the reactionary planning commission regime. Instead of progressive thinking and proactive approaches for management, planning and regulation, these institutions seem to be stuck in a vicious regressive loop.
The latest proof for this came on April 7th, when the State Bank of Pakistan (SBP) issued a warning to the general public, as well as commercial private banks “to be cautious of, and refrain from, indulging in activities relating to mining, trading, exchanging, transferring value, promoting and investing in Virtual Currencies/Coins/Tokens to avoid any potential financial losses and legal implications.” This notice came shortly after the Reserve Bank of India directed banks to wrap up all dealings with virtual currency players within three months. Such reactions are mind-boggling because: a) The trend in the financial markets point to the contrary and, b) The SBP lacks any data whatsoever on the prevalence of virtual currencies in Pakistan.
The SBP or the Reserve Bank of India’s reaction has to be weighed against a basic reality, ie, technology is clearly boundless and state institutions here are certainly not up to the mark to prevent its application. Take the case of Uber and Careem. They have continued their operations, unhindered, despite serious reservations by the authorities.
Cryptocurrency is a digital asset and virtual form of currency. It means that this asset only exists electronically in blocks on a blockchain network. Cryptocurrency is not attached to any state or government institution, so it does not have a central issuing authority or a regulating body. Like every commodity, its value is based on the conventional demand and supply framework. It is designed to work as a medium of exchange and is encrypted (secured) by using cryptography. The main currency in cryptocurrency markets is Bitcoin, which was created in 2009 and is the first decentralised cryptocurrency, and continues to dominate the crypto space with over 40% market share.
Blockchain technology, by using Cryptographic Algorithm Hash Function, allows for cryptocurrencies to be stored, traded and exchanged on a digital public ledger. The major innovation is that the technology allows market participants to transfer assets across the internet without the need for a centralised third party, eg, banks and clearing houses in the case of fiat money. Anyone on the network can access and verify every transaction in real time. The intangible nature of cryptocurrency with easy and swift accessibility is what makes it so attractively different, making the transaction costs hypothetically negligible.
Governments across the world have been toying with the idea of using ‘blockchain’ across a myriad of useful applications such as smart contracts, crowd-funding, governance and protection of intellectual property. Unlike India or Pakistan, the new system is gaining ground elsewhere; countries like Japan and Canada meanwhile have approved cryptocurrencies. Others such as Iceland and Spain have chosen to have their own national cryptocurrencies. Moreover, 22 EU countries signed a blockchain partnership at ‘Digital Day 2018’ on April 10th. European Commissioner for Digital Economy and Society Mariya Gabriel made a statement in regard to this new alliance saying: “In the future, all public services will use Blockchain technology. Blockchain is a great opportunity for Europe and member states to rethink their information systems, to promote user trust and the protection of personal data, to help create new business opportunities and to establish new areas of leadership, benefiting citizens, public services and companies.”
Despite the fact that others like China are still reluctant and appear to be stuck in the ‘to do or not to do’ planning and policy conundrum, it is still not clear whether virtual currencies will be treated like securities or assets in the near future or otherwise. However, countries such as Pakistan need to follow examples of Japan or China, to develop a mechanism to timely deal with the increasing phenomenon of cryptocurrency market, artificial intelligence and blockchain. Inviting tech startups by relaxing regulation and tax laws, holding technology conferences to educate the masses and exploring launching Pakistan’s own stable cryptocurrency is a good place to start thinking proactively. This will have positive economic impacts by bringing economic freedom and opening up access to international trading markets and probably also ensure sustainability.
Keeping all this in mind one wonders whether the SBP warning was a typical reactionary institutional attempt to create Fear, Uncertainty and Doubt in the crypto financial markets or a sincere effort to caution people at large against investing in the virtual currency?
No doubt, the Crypto market is volatile and the central bank, as a central watchdog of financial markets, is responsible to warn the public about the volatility of this but it should ideally focus on designing laws such as how to tax the income people are making from the cryptos. We can learn from Canada because officials there are proactively approaching this matter and will most likely treat cryptos as securities.
Published in The Express Tribune, April 17th, 2018.
The latest proof for this came on April 7th, when the State Bank of Pakistan (SBP) issued a warning to the general public, as well as commercial private banks “to be cautious of, and refrain from, indulging in activities relating to mining, trading, exchanging, transferring value, promoting and investing in Virtual Currencies/Coins/Tokens to avoid any potential financial losses and legal implications.” This notice came shortly after the Reserve Bank of India directed banks to wrap up all dealings with virtual currency players within three months. Such reactions are mind-boggling because: a) The trend in the financial markets point to the contrary and, b) The SBP lacks any data whatsoever on the prevalence of virtual currencies in Pakistan.
The SBP or the Reserve Bank of India’s reaction has to be weighed against a basic reality, ie, technology is clearly boundless and state institutions here are certainly not up to the mark to prevent its application. Take the case of Uber and Careem. They have continued their operations, unhindered, despite serious reservations by the authorities.
Cryptocurrency is a digital asset and virtual form of currency. It means that this asset only exists electronically in blocks on a blockchain network. Cryptocurrency is not attached to any state or government institution, so it does not have a central issuing authority or a regulating body. Like every commodity, its value is based on the conventional demand and supply framework. It is designed to work as a medium of exchange and is encrypted (secured) by using cryptography. The main currency in cryptocurrency markets is Bitcoin, which was created in 2009 and is the first decentralised cryptocurrency, and continues to dominate the crypto space with over 40% market share.
Blockchain technology, by using Cryptographic Algorithm Hash Function, allows for cryptocurrencies to be stored, traded and exchanged on a digital public ledger. The major innovation is that the technology allows market participants to transfer assets across the internet without the need for a centralised third party, eg, banks and clearing houses in the case of fiat money. Anyone on the network can access and verify every transaction in real time. The intangible nature of cryptocurrency with easy and swift accessibility is what makes it so attractively different, making the transaction costs hypothetically negligible.
Governments across the world have been toying with the idea of using ‘blockchain’ across a myriad of useful applications such as smart contracts, crowd-funding, governance and protection of intellectual property. Unlike India or Pakistan, the new system is gaining ground elsewhere; countries like Japan and Canada meanwhile have approved cryptocurrencies. Others such as Iceland and Spain have chosen to have their own national cryptocurrencies. Moreover, 22 EU countries signed a blockchain partnership at ‘Digital Day 2018’ on April 10th. European Commissioner for Digital Economy and Society Mariya Gabriel made a statement in regard to this new alliance saying: “In the future, all public services will use Blockchain technology. Blockchain is a great opportunity for Europe and member states to rethink their information systems, to promote user trust and the protection of personal data, to help create new business opportunities and to establish new areas of leadership, benefiting citizens, public services and companies.”
Despite the fact that others like China are still reluctant and appear to be stuck in the ‘to do or not to do’ planning and policy conundrum, it is still not clear whether virtual currencies will be treated like securities or assets in the near future or otherwise. However, countries such as Pakistan need to follow examples of Japan or China, to develop a mechanism to timely deal with the increasing phenomenon of cryptocurrency market, artificial intelligence and blockchain. Inviting tech startups by relaxing regulation and tax laws, holding technology conferences to educate the masses and exploring launching Pakistan’s own stable cryptocurrency is a good place to start thinking proactively. This will have positive economic impacts by bringing economic freedom and opening up access to international trading markets and probably also ensure sustainability.
Keeping all this in mind one wonders whether the SBP warning was a typical reactionary institutional attempt to create Fear, Uncertainty and Doubt in the crypto financial markets or a sincere effort to caution people at large against investing in the virtual currency?
No doubt, the Crypto market is volatile and the central bank, as a central watchdog of financial markets, is responsible to warn the public about the volatility of this but it should ideally focus on designing laws such as how to tax the income people are making from the cryptos. We can learn from Canada because officials there are proactively approaching this matter and will most likely treat cryptos as securities.
Published in The Express Tribune, April 17th, 2018.