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Beneath the towering Himalayas, a new economic frontier is emerging - built on bits, blockchains and digital payments. Pakistan, with over 20 million citizens already using cryptocurrency, stands on the brink of a digital transformation. Yet the State Bank of Pakistan (SBP) remains cautious, torn between blockchain's promise and potential pitfalls. Will Pakistan seize this opportunity, or risk being left behind? Cryptocurrency adoption in Pakistan is rooted in harsh economic realities. With over 220 million people, the nation faces inflation, a volatile rupee and limited access to traditional banking. Bitcoin, Ethereum and stablecoins like USDT provide millions with a buffer against these uncertainties and an entry point to new financial tools. In Karachi and Lahore, a quiet revolution is unfolding. Young Pakistanis trade Bitcoin late into the night, housewives secure their savings in USDT and migrant workers increasingly turn to Ethereum to reduce remittance fees. Far from mere speculation, these activities demonstrate resilience and innovation. In 2020-21, crypto transactions reached $20 billion - an astonishing 711% jump - placing Pakistan among the world's most active crypto markets. Despite this surge, the SBP highlights volatility, illicit uses and security issues tied to decentralised networks. In 2018, it barred financial institutions from handling crypto transactions, then partially relaxed this stance in 2019. Even so, absent clear regulations, widespread adoption remains limited. While blockchains are often deemed anonymous, they are more accurately pseudonymous. Transactions can be tracked with advanced tools, but decentralisation complicates oversight, fueling fears of fraud, money laundering and terrorism financing. These concerns do not negate blockchain's traceability; they underscore the difficulty of enforcement without a central authority. Still, the potential benefits are significant. Incorporating blockchain could boost financial inclusion, reform remittances and drive technological progress. With over 100 million unbanked citizens, Pakistan can leverage secure, account-free transfers, bypassing a system that has historically excluded them. Stablecoins might also hedge against rupee volatility, improving day-to-day financial stability. Pakistan's sizable remittance market could likewise benefit. Migrant workers send billions of dollars each year, often incurring fees above 7%. Faster, cheaper crypto channels could save them considerable sums while broadening financial access. Lower fees might also attract foreign investors, drawn to emerging markets open to digital innovation. Global tech firms have taken notice. Google Pay, for instance, recently launched with features like online shopping, bill payments and instant money transfers - indicating a growing appetite for tech-driven finance. Yet services like Google Pay still rely on traditional banking, which can limit unbanked users and raise transaction costs. By contrast, digital currencies eliminate many intermediaries and offer lower fees, making them vital for financial inclusion and resilience across Pakistan. Nevertheless, the SBP remains cautious. Banks cannot directly handle crypto transactions, and vague regulations deter broader acceptance. The Sindh High Court's decision in Waqar Zaka v. Federation of Pakistan (2019) and subsequent Federal Investigation Agency (FIA) actions under PECA 2016 and the Pakistan Penal Code (PPC) have further cooled the market. A balanced, forward-looking strategy is essential. Rather than blanket bans, the government should craft clear frameworks that protect consumers, combat money laundering and manage financial risks. A dedicated regulatory authority, working with industry stakeholders, could promote compliance and responsible growth. El Salvador's 2021 decision to adopt Bitcoin as legal tender offers one example. Intended to increase financial inclusion and reduce reliance on the US dollar, it drew global attention and tech investments, though it also sparked controversy. Measures like a public Bitcoin trust and education programmes helped mitigate volatility and misuse. Switzerland provides another model. Its Financial Market Supervisory Authority (FINMA) enforces transparent guidelines and investor safeguards, drawing blockchain startups and global funding. Legal clarity and strong protections have made it a magnet for digital asset innovation. India offers further insight. After the Reserve Bank of India's 2018 restrictions had been overturned in 2020, the government introduced a 30% tax on digital asset gains. While contentious, it effectively classifies crypto as taxable and within the regulatory realm, rather than banning it outright. For Pakistan to harness crypto's potential, it should address several priorities. First, a specialised body must supervise compliance with anti-money laundering (AML) and counter-terrorism financing (CTF) rules. Second, policymakers should work with blockchain experts to educate public and private stakeholders on both the risks and rewards of digital currencies. Finally, targeted support for blockchain-based solutions in payments, remittances and financial inclusion could make Pakistan a regional leader in digital finance. Moreover, a robust crypto framework could mesh seamlessly with other FinTech initiatives, such as mobile-based microlending and digital savings platforms. As local startups mature, partnerships with international payment providers and venture capitalists could invigorate Pakistan's tech sector. These cross-border collaborations generate jobs, draw funding and nurture advanced digital skills nationwide. Pakistan also has natural advantages: a youthful population - over half under 25 - and soaring smartphone adoption rates. By pairing these strengths with stable regulations, the country could foster entrepreneurship, attract foreign capital and instil trust in blockchain ventures. Ultimately, Pakistan's success hinges on finding the right balance between regulation and innovation. A strategy that addresses risks yet encourages growth can unlock blockchain's transformative potential. Achieving this requires shifting attitudes - replacing skepticism with cautious optimism - and implementing a regulatory framework that safeguards the public interest while unveiling the nation's digital future.
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