The Government of Pakistan has recently appointed an advisor on cryptocurrency. This development suggests that the state is exploring the possibility of legalizing or at least regularizing the use of cryptocurrencies within the country. While this move reflects an attempt to stay abreast of global financial trends, it is essential to critically assess the potential benefits and risks associated with such a decision. Before advancing further, we must ask a fundamental question: In presence of digital banking infrastructure like EasyPaisa, what additional advantages would Pakistan truly gain from embracing cryptocurrency?
To explore this, I turned to artificial intelligence and asked it to list the possible advantages of adopting cryptocurrency. The response included several often-cited benefits: decentralization, low transaction costs, convenience, transparency, anonymity, freedom from government control, enhanced financial inclusion, access to global markets, and the ability to control inflation. While some of these points appear attractive on the surface, a deeper analysis reveals significant concerns, contradictions, and overstatements that must be addressed.
Let us start with the claim about the low cost and convenience of transactions. In the presence of digital wallets like Easypaisa and JazzCash in Pakistan – and PayPal and others internationally – transactions are already conducted in real time and with minimal to no transaction costs. These services are widely accessible, even to people in remote areas, and have proven to be effective in promoting financial inclusion. In this context, portraying cryptocurrencies as superior in terms of transaction cost and speed is misleading and unnecessary. The current digital payment infrastructure has already achieved these goals more efficiently and with greater transparency.
Furthermore, the simultaneous mention of “transparency” and “anonymity” in cryptocurrency transactions appears contradictory. While blockchain technology does record transactions on a public ledger, identifying the actual individuals behind these transactions remains extremely difficult. The anonymous nature of these transactions makes them particularly attractive for money laundering, terror financing, and tax evasion. Unlike traditional financial systems, where institutions are obligated to report suspicious transactions, cryptocurrencies operate in a space where such oversight is either weak or entirely absent. This is not an advantage – it is a glaring risk that can destabilize national security and financial systems.
Financial inclusion is another perceived benefit often associated with cryptocurrencies. The argument is that people excluded from the formal banking sector can gain access to financial services through cryptocurrencies. However, we must ask: Is cryptocurrency truly more accessible or understandable for the average Pakistani citizen than platforms like Easypaisa? Can a daily wage laborer or a small vendor easily understand how to buy, store, or use cryptocurrencies securely? The answer is clearly no. Digital wallets, which operate in local languages and require only a basic mobile phone, are far more intuitive and user-friendly. Thus, the claim that cryptocurrency promotes better financial inclusion is not convincing in the Pakistani context.
Another supposed benefit is seamless access to global markets. Indeed, cryptocurrencies can be sent across borders without the need for foreign exchange regulations or government approval. But this feature is precisely what makes them problematic. The lack of regulation may allow users to bypass legal frameworks, facilitating illicit transactions. Calling this “access to global markets” masks the fact that what is often happening is an evasion of financial oversight.
The one distinctive feature of cryptocurrency often highlighted is its decentralized nature. Unlike fiat currency, which is controlled by central banks, cryptocurrencies operate without any central authority. At first glance, this may appear as a democratic approach to finance, but in practice, it leads to a shift in financial power. Control no longer lies with institutions accountable to the public but with those who have advanced technological access and resources – often large mining pools, software developers, or wealthy investors. These actors are not answerable to any public body and can exert immense influence without transparency. Devolving such significant power away from central banks to unregulated individuals or entities is not just risky – it can prove disastrous for national economies.
One individual in a social media debate claimed that cryptocurrency can be a tool to control inflation, as its supply is limited and cannot be manipulated like fiat currencies. But this too is problematic. Who decides the upper limit of any given cryptocurrency? If there is a central authority or group of developers that sets these limits, then some degree of centralization exists – and that authority can modify the limits to exploit market conditions. Moreover, the existence of thousands of different cryptocurrencies – each with its own protocols and limitless potential for creation – renders the claim of limited supply meaningless. Anyone with the technical knowledge can create a new cryptocurrency tomorrow, diluting the scarcity argument.
The notion that cryptocurrencies can help stabilize inflation is perhaps the most ironic claim. These digital currencies are known for extreme price volatility. Bitcoin, for instance, has experienced wild swings in value within days, sometimes losing or gaining thousands of dollars. If a currency itself cannot maintain stable value, how can it be expected to stabilize the prices of goods and services? The idea borders on the absurd.
Legalizing cryptocurrency would also mean that the government relinquishes a significant degree of control over the financial system. Financial regulation is one of the strongest tools available to any government for controlling economic activity, ensuring stability, and preventing illegal financial flows. By legalizing decentralized and anonymous financial tools like cryptocurrency, the state would lose its grip on these levers. The risk of increased illegal activity, including money laundering and terror financing, would rise exponentially. In an environment where the financial literacy rate is already low and regulatory enforcement is weak, introducing cryptocurrencies could open the floodgates to exploitation.
Hence, before taking any concrete steps toward legalizing or adopting cryptocurrency, the Government of Pakistan must perform a rigorous cost-benefit analysis. If there are no distinct and compelling advantages – especially advantages that cannot be achieved through existing systems – then there is no urgency or justification for moving forward. Pakistan should not be among the first nations in the region to legalize cryptocurrencies. Rather, it should observe international developments carefully and prioritize pressing economic issues such as inflation control, tax reform, digital infrastructure, and employment generation.
In reality, the fascination with cryptocurrency in Pakistan seems to stem from a collective obsession with “easy money.” Many are drawn to these digital assets in the hope of overnight riches, driven by media hype and crypto success stories. But as we’ve seen, such ventures can also lead to catastrophic failures. Notably, two of the most prominent banks involved in cryptocurrency in the United States faced collapse in recent years. Their downfall was directly linked to excessive exposure to the crypto market. This should serve as a cautionary tale for countries like Pakistan, where financial systems are still developing.
In conclusion, while it is important to stay updated with global technological trends, it is even more important to exercise caution and prudence. The risks associated with cryptocurrency far outweigh the perceived benefits, particularly in Pakistan’s socio-economic context. The government should focus on strengthening existing financial infrastructure rather than gambling on a technology that remains volatile, opaque, and difficult to regulate.
