Representations of the Ripple, Bitcoin, Etherum and Litecoin virtual currencies are seen on a PC motherboard in this illustration picture. — Reuters/File

Pakistan needs to embrace digital assets, cryptocurrencies can wait

The government may do well to assign the leadership of digital assets initiative to a single resourceful entity: SECP.
Published September 24, 2021

This year, Pakistanis witnessed something they had never seen happen before. One of the country's most viral memes, 'Friendship ended with Mudasir', was auctioned at an online platform for 20 Ethereum tokens.

It was something new, something intriguing and social media soon buzzed with friends discussing the memes they had made and wondering whether they could be sold as non-fungible tokens (NFTs) — a new type of digital asset.

It wasn't the first time that cryptocurrency and digital assets were being discussed. After all, even the government had been thinking of how to benefit from them with Khyber Pakhtunkhwa announcing it was planning to build two hydroelectric-powered pilot “mining farms”.

There are also numerous groups on social media claiming to teach newcomers everything they need to know about cryptocurrencies and how to mine them.

It seems though that the hype and controversy surrounding cryptocurrencies, and to a lesser extent NFTs, is causing Pakistanis to overlook other digital assets and underlying technology that can meet their economic needs.

Why is crypto controversial?

Crypto such as Bitcoin is prone to controversy for real or perceived risks pertaining to money laundering, terrorism financing, excessive price volatility, mega and bizarre heists, attracting fraudsters and extortionists, legal battles with regulators, ideological battles with the state and central banks, excessive energy consumption and e-waste in mining, and so on.

Many doubt cryptos offer anything other than an opportunity to speculate. Legendary investor Warren Buffet does not think these are about investing. His reason is simple: unlike a farm, an apartment, or a stake in a business, crypto itself cannot generate a return. “You’re just hoping the next guy pays more,” he explains. He has even gone so far as to call bitcoin “delusion” and “rat poison”.

Employees work on bitcoin mining computers at Bitminer Factory in Florence, Italy. — Reuters/File
Employees work on bitcoin mining computers at Bitminer Factory in Florence, Italy. — Reuters/File

Some countries, including China and Turkey, have taken strong measures to curb cryptos. In India, the central bank had forbidden banks from dealing in cryptos in 2018. The Supreme Court removed the ban in 2020 but the future remains uncertain.

In 2019, the Financial Action Task Force (FATF), the inter-governmental organisation against money laundering and terrorism financing, announced that the “threat of criminal and terrorist misuse of virtual assets is serious and urgent”.

Its recommendation 15 requires countries to take all possible measures, from licensing to sanctions, “to assess and mitigate their risks associated with virtual asset activities and service providers”.

Regulators are treading with caution. In the UK, where gambling is legal, the Financial Conduct Authority banned the sale of crypto derivatives to retail clients in 2021.

Read: The Pakistani crypto scene

The positives of crypto

In defence of cryptos, their supporters would argue that these are about economic efficiency and freedom as they cut out intermediaries, commissions, and state controls.

Cryptos are only a tool that can be used for both good and bad purposes. Some of the fiats have also been highly volatile at times and supporters of cryptos think that it is the control-freak states that are cracking down on cryptos. They point out that today you can buy a car, stocks, or art and much more with cryptos.

Recently, El Salvador has made Bitcoin legal tender and others like Honduras and Guatemala may follow.

Cryptos pose a challenge to the conventional financial system that has lost people’s trust. Despite the animosity of central banks, cryptos have already lasted longer than many of their critics had expected. Supporters believe that cryptos are evolving and improving and they are here to stay.

Digital currencies by banks

A 2021 survey of central banks by the Bank for International Settlements, an umbrella group of central banks, found that more than 80 per cent are actively researching the potential of digital currencies and some are running pilot projects.

Central bank digital currency also offers direct and instantaneous payment but would be legal tender and subject to the rules by the central bank. Along with a crackdown on cryptos, China has introduced its own digital currency known as digital yuan.

Read: SBP studying digital currency, says governor

What Pakistan's strategy should be on crypto

In Pakistan, where most of the population is poor and religiously conservative and gambling is illegal and a stigma, the socio-economic environment doesn’t favour allowing speculation in cryptos.

A large depreciation of rupees has made the life of average Pakistanis miserable and there is a policy paranoia about inadvertently leaving a back door open that could lead to forex exiting Pakistan.

Pakistan can also ill afford to offer seemingly hostile FATF any excuse, no matter how lame, to keep it on the grey list.

In 2018, the State Bank of Pakistan (SBP), imposed a “prohibition” on dealing in virtual currencies for the entities it regulates and “advised” the public to “refrain from indulging in” cryptos. The action by SBP was legally challenged and the matter may be sub judice but the prohibition remains.

Given that SBP has already imposed a prohibition, wait and see is now an appropriate strategy.

Pakistan needs to work its way out of the FATF grey list, analyse the results of central banks' experiments with digital currency and better understand the fast-changing world of cryptos.

But the same is not true of digital assets in general and the underlying technology. Here, we should be able to find non-controversial ways to serve the economic needs of the citizens at large and get a handle on the technology which has wide applications from health care to real estate.

Pakistan already familiar with some digital assets

There is no one definition of digital assets and these are often confused with digitisation of services like online payment of fees and taxes. One can think of digital assets as simply things that exist digitally.

We are familiar with some of them without necessarily thinking of them as digital assets, such as an email or social media account, a website, airtime on a mobile phone number, a TikTok video, an e-book or loyalty points earned through credit card purchases.

However, using a digital asset is very different from owning it. We do not own many of the digital assets that we use, such as our email account or a Twitter account — we only have a user licence.

The viral 'Friendship ended with Mudasir'meme that was auctioned at an online platform for 20 Ethereum tokens. — Picture courtesy: Facebook
The viral 'Friendship ended with Mudasir'meme that was auctioned at an online platform for 20 Ethereum tokens. — Picture courtesy: Facebook

The Government’s Digital Pakistan Policy seeks to improve the quality of life for citizens through better information and communication technology. Digitisation is desperately needed to make life easier for Pakistanis.

However, the policy does not address digital assets and associated technology and fresh work needs to be done here.

Read: Can Digital Pakistan become a reality?

The Securities and Exchange Commission of Pakistan (SECP) took a step forward on digital assets when it published a paper in November 2020 on their regulation.

In August 2021, the regulator announced that it has allowed initiatives under its regulatory sandbox program for experimenting with new technologies including distributed ledger.

The necessity for legislation

In order to develop the digital assets market, legal certainty through enabling legislation is essential. Pakistanis must be enabled to legally make, keep, transfer, use, buy, sell, gift, or inherit them.

These rights regarding digital assets for both natural persons and legal entities through an act of parliament will be the foundation for the development of the digital assets market.

In England, the Law Commission, a statutory independent body that works on reforming the law, has initiated a project on digital assets to ensure that the law recognises and protects digital assets in a digitised world.

When it comes to law, England is considered one of the most sophisticated jurisdictions in the world. The fact that this exercise is being undertaken in England highlights the burning need to undertake a similar exercise in Pakistan.

It helps to remember that it was the enabling legislation for digitalisation of the stock market — the Central Depository Act, 1997 — that led to revolutionisation of its operations. Yes, traditional financial securities are not modern digital assets nor their record-keeping is through a distributed ledger. However, the point remains that it will take enabling legislation before the digital assets market can take off.

Potential markets for digital assets

Some forms of digital asset trading, like trading of domain names, the real estate of the internet to build a site, have been around for quite some time. There are entities serving as domain name registrars that may also provide auction facilities. That is, online trading of unique digital assets through fiat money in a fragmented market is not new.

The challenge now is to enable organised record-keeping and trading through distributed ledger, such as blockchain. The asset may be fungible, where one unit is the same as another, for example, airtime or non-fungible, for example, a piece of art.

The currency used would be Pakistani Rupees or any of the world's major currencies. Down the road, it could also be a true blue digital rupee by SBP or any crypto that the SBP may allow.

Consider the following three potential markets:


Imagine the potential if airtime could be traded in an open auction market where Pakistanis at large could participate. There are more than 173 million mobile phone connections in Pakistan — the market could not be any larger. The buyer needing airtime or data may be able to buy it at rates cheaper than offered by the telecom provider. The seller would be able to dispose of spare time instead of carrying them to expiry.

With a liquid secondary market, the primary market would also flourish. People are more inclined to buy what they can later sell with ease, whether a house or a car, and digital assets are no exception. The telecom operators in Pakistan are already allowing transfer for balance to another user. The securitisation of airtime for a telecom seeking financing from capital markets is well precedented and has also been carried out in Pakistan. The secondary trading of airtime by users is a logical next step that could open a mass market.

Company-issued tokens

Company-issued tokens such as credit card points, airline points, fuel card points are digital assets that could also be traded just like airtime. These can often be converted into specified goods and services through participating stores. Trading of tokens could grow their market exponentially and make new marketing strategies possible for the issuing companies.


Another potential market for digital assets is art. Where a work of art has a NFT created through blockchain, anyone may still be able to see or copy it but there is only one authentic original and only one person can own it. To take a simple example, there are any number of copies of the painting Mona Lisa but there is only one original.

"Everydays: The First 5,000 Days" is a collage, by a digital artist Beeple, that was on auction at Christie's. — Reuters/File
"Everydays: The First 5,000 Days" is a collage, by a digital artist Beeple, that was on auction at Christie's. — Reuters/File

NFTs are collector’s items in digital form. A digital piece of art, a collage of 5000 images, was auctioned as an NFT for more than $69 million this year and paid in the form of the digital currency Ether.

A tweet by one of the Twitter founders was sold as an NFT for more than $2.9 million. These are of course exceptional transactions but selling art through NFT is now an established practice for many artists. The fact that there is a market for digital art needs no debate and Pakistani artists also deserve the chance to auction their digital art.

Technology, policy need to go hand in hand

In the buzz about digital assets, it appears they are all about technology. Wrong. Technology helps create, record, and trade assets but policy is the enabler and facilitator. The reason Pakistan’s stock market has been digitised is not just because the technology was invented abroad but because there was a sustained policy effort to implement it in the Pakistani market.

To move the needle on digital assets, the federal government may do well to assign the leadership of the initiative to a single resourceful entity, e.g., SECP, and let it develop a roadmap in consultation with all concerned.

There is a lot to be done: We need a policy direction, enabling legislation, market infrastructure including deployment of distributed ledger, clarity on accounting and taxation, reputed foreign partners, a designated regulator and of course sophisticated professionals who will run the show. The resulting model for the digital assets market will be customised to meet the economic needs of Pakistanis rather than the convenience of global speculators.

The preparedness for the digital assets market and a central bank digital currency will also help Pakistan take a better informed and nuanced policy decision on cryptos down the road.

It will take time and effort but given the potential economic benefits of digital assets and the underlying technology for Pakistanis at large, it is well worth it.

Usman Hayat is a former CEO of the Audit Oversight Board, Executive Director at the Securities and Exchange Commission and content director at CFA Institute (London). He tweets @Usman_Hayat

Sumbul Naved Qureshi is a lawyer with extensive experience in regulatory compliance and runs her own Dubai-based consulting firm FinTech Regulatory Compliance.