Published in Jul-Aug 2022
From Elon Musk’s tweets about Dogecoin to NFTs owned by Snoop Dogg and Madonna, the global boom in cryptocurrencies, and the wider blockchain space, is making front-page news in most Western countries. It is therefore ironic that the country with the third-highest adoption of cryptos (as per the Chainalysis 2021 Global Crypto Index) – Pakistan – has no regulation that allows it to nurture and grow the field based on its existing adoption. In fact, research by the Federation of Pakistan Chambers of Commerce & Industry reveals that in 2020-21, Pakistanis held in excess of $20 billion in cryptocurrencies; a figure that exceeds the country’s entire foreign exchange reserve.
The reality is simple. The Pakistani people have a clear desire to partake in the global crypto revolution and the onus is on the government to dictate and control the terms on which they should be interacting with cryptocurrencies. Regulation is urgently needed to ensure that Pakistan can fully reap the rewards of a revolution that is coming, whether we like it nor not.
India has made great strides in the field. The Indian Government did a complete u-turn on its crypto ban and now it has taxes on crypto earnings, thereby creating a new income stream for the exchequer. Countries in the West too have realised that crypto currencies are here to stay. The UK for instance has comprehensive taxation legislation that dictates how earnings from cryptos are either liable for capital gains tax or for income tax. Further afield, El Salvador made history by becoming the first country in the world to have a cryptocurrency as legal tender, thereby allowing people to buy their morning coffee or weekly groceries using bitcoin. Other countries in the region are also in various stages of legislation to either follow suit or regulate the various ways in which cryptocurrencies can be used.
If Pakistan is to compete on the global stage, adequate regulation is paramount and the dire need of the hour.
Firstly, regulation is needed to put in place adequate KYC procedures, so that fear of money laundering, or worse, can be allayed by having the right checks in place. Vast sums of crypto assets are already being moved around by Pakistanis, so it cannot be overemphasised that regulation for KYC procedures is an absolute must.
Secondly, regulation in cryptos is needed to allow the state to benefit from taxation on crypto income. More and more people will trade in cryptos or touch the crypto ecosystem in some way, shape or form and the exchequer not benefiting from these gains seems a massively missed opportunity, in a country where collecting taxes otherwise is a major challenge. Furthermore, if we take this a step further and Pakistan can allow for favourable corporate taxation for cryptocurrencies, Pakistan could become a hub in the region, attracting organisations building on the blockchain or using cryptocurrencies, thereby encouraging new foreign direct investment. Thirdly, for a country where the size of its foreign reserves have been a cause of concern for most of its recent history, having a regulated crypto the ecosystem could allow for an increase in foreign remittances with many of the newer blockchains, offering negligible transaction fees and near instant cross-border payments, which in turn could increase the amount and frequency of foreign remittances entering the country. Fourthly, crypto regulation can serve to reduce capital flight. With the Pakistani rupee plummeting against the US dollar, cryptos can offer a safe, yet legal, store of value that dissuades the outflow of capital. Finally, on a more holistic level, Pakistan has a rare, albeit fleeting, chance to be at the forefront of the next technology revolution by adequality embracing and regulating cryptocurrencies.
The last time we had this chance was during the Web2 boom and Pakistan missed the boat, while China and India steamed ahead and managed to produce 301 and 101 unicorns, respectively. Unicorn being a startup that has a valuation in excess of one billion dollars. Estonia, a country that has less than a tenth of the population of Lahore, has managed to produce two unicorns and so has Bangladesh. Pakistan has not even come close, with Pakistani startups struggling to make it big on the world stage. Cryptocurrencies and blockchain offer a second chance; a chance to be a part of Web3 and change the destiny of our technology frontier.
It is hoped that the powers that be in Pakistan take the time to fully understand the revolution that blockchain and cryptocurrencies are bringing, and create the relevant legislation to allow for Pakistan to embrace the change and use it to its advantage for economic growth and prosperity.
Jafer Ali Shariff is a financial services sector professional who lives and works in London & Paris.