Bitcoin is a digital cryptocurrency, secured through encryption, having no bills and physical coins. Instead, the existence of currency depends on the network of users who work together to process and verify the transactions made digitally. This chain of users and the transactions is what forms bitcoins or digital Cryptocurrency.
History of Bitcoin
The idea of Bitcoins or digital currency came into existence with the release of a paper in November 2008. The report was titled “Bitcoin: Peer to Peer Electronic Cash System” It mainly focused on how a peer-to-peer transaction ‘‘digitally” would make sense. The author of this paper kept his identity hidden under the fictitious name” Satoshi Nakamoto.“
He quite purposefully pitched the idea of maintaining a decentralized system for making transactions in a peer-to-peer network. It was not long after the launch of this paper that this idea of digital currency became a reality. The author himself was the first to mine the first bitcoins in January 2009. This idea of digital currency was highly appreciated by the cryptographers and anarcho-activists, who found liberation from government rules, accountability, regulations, and extra charges in bitcoins.
The first time bitcoins were ever used in a transaction was in 2010 when a programmer, Laszlo Hanyecz from Jacksonville, FL, paid digitally to his fellow for some Pizzas from PapaJohn’ss.
Bitcoin started to gain value over time. Beginning from $1 around 2011, bitcoin became popular. Gradually, things began to get better, and bitcoin’s value boomed to a reasonable $200 in October 2011. Unfortunately, that didn’t last for long as a hacking incident resulted in the crash of bitcoin’s value. It was late November that year when Bitcoin again boomed to its highest value, $1242. These facts show that the value of this currency was never under anyone’s control. It could rise or fall anytime to any level.
How does Bitcoin Works?
Bitcoins are just like any other currency that you process. Physical currency is the one for which you make your transactions; the banks keep records of all your withdrawals and deposits in their ledger and process. Like that, the bitcoins are transacted and saved, but the only difference with bitcoins is that the responsibility of keeping track of transactions and maintaining ledgers comes to the entire community or network of people. There is no one accountable for checking what transactions are made. Instead, a file is maintained, termed as the “blockchain.” This file is open to all and acts as a ledger for the bitcoin transactions made in the community. People in the network have no bank account numbers.
Instead, they have encrypted addresses. If anyone buys any bitcoins, they are allocated to their address and then kept as a record in the blockchain with that address.
Why Bitcoin?
Well, Bitcoin has given an entirely new dimension to currency. It is an independent system with no one looking after it. In this era, where technology and automation are taking over everything, this digital Cryptocurrency is on the top of the list. Bitcoins’ system of currency is entirely free of corruption. It has no threat of a central bank system, incorporating more advantageous regulations to the bank than the users. It is entirely free of the banking’s toxic strategies that aim to take control of your finances. Bitcoin allows one to enjoy independent, accessible, and most importantly, identity-free access to a financial system. Bitcoins have eased things by allowing anonymous payments.
This currency system allows users to make instant payments through cheap and easy transfers across international borders. It has considerably eased things for people with limited or no access to banks or other transaction systems, which is a significant factor in developing countries like Pakistan. Let’s see how Bitcoins have evolved in Pakistan and how important they are for the country.
Bitcoin Market in Pakistan
As discussed earlier, Bitcoins are of crucial importance in developing countries, where many people do not have access to banks, especially in remote areas.
The Arrival of Bitcoin exchange in Pakistan
Urdubit was the first and biggest Pakistani Bitcoin exchange established in October 2014. Founded by Danyal Manzar and Zain Tariq, this platform operated over Blinktrade’ss platform and engine. The owners of this exchange came to know about Bitcoins in 2012, one year after the Bitcoin Boom, which gained media attention. The creators saw a gap in the market for a country like Pakistan, where $16 million or above came as overseas remittances, and many of them are for people living in remote areas with no access to banks.
Pakistan is home to 100 million adults without a bank account, with 13 percent adults citing religious concerns as a reason for not having an account at a financial institution, a World Bank report on the use of financial services revealed.As per the Dawn report from April 2018:
Urdu bit decided to target Pakistan’s Freelance market for whom the money exchange or cash payments are an issue. Freelancers were a huge market in Pakistan at that time (May 2016) too. To accommodate such a massive number of users, Urdubit decided to partner with Bitwage. But all this was ceased as Urdubit announced to shut down suddenly! However, talented youth from Freelancer.com is still getting a lot from it. Thanks to them that they are also operating in Pakistan.
Issues with Bitcoin in Pakistan
Pakistan became one of the medium-density Bitcoin regions on the world map in 2014. As a result, many people in Pakistan started to use Bitcoins for their transactions as it offered a more accessible way out. In a report from Tribune in February 2014, one of the famous tech gurus and payment experts Faisal Khan recorded his stance on Bitcoins:
“At present, there is no official stance on Bitcoins in Pakistan. However, there is no cost on Bitcoin transactions, and that makes it a very attractive perspective”
For quite a long time, there appeared to be no government stance on the regulation of Bitcoins in Pakistan. The issue was only rendered to debates and articles where people presented the pros and cons of using bitcoins in Pakistan. One of the reasons for the confused, somewhat disputed opinion about bitcoins was its alleged use in money laundering activities worldwide, making the digital currency extremely volatile. Few rendered it an issue with the transparency of transactions, which is essential with Pakistan’s state bank. So anytime the bitcoins are to be approved, there needs to be a transparent mechanism to accept the system nationally.
The issue never came upon a bigger platform to be discussed until the end of 2017.
The Halal Bitcoin
A lot of issues were rising along with the value of bitcoins, one of the most critical questions for the Muslim communities around the globe was,” “Is Bitcoin Halal or Haram form of financing”
Shariah law requires currency to be tangible (having evidence of existence) and have a stable market value to be halal.
This issue was addressed by Medina Kalimullina, the adviser on Islamic Economics and Finance of the Russian Muftis Council. She opened up a discussion about creating a halal cryptocurrency. She concluded that there was no Shariah law for the usage of the bitcoin till the moment. Therefore, whether the bitcoins are permissible in Islam or not is yet to be decided. However, she hoped there would be a law under which one could declare the bitcoins as either halal or haram way of financing within the coming years.
According to the Tribune report of November 2 2017:
“Sharia standards do not cover this issue yet, but in the perspective of two or three years they can be developed,” Kalimullina said after a conference in Kazan.
The concern that most Muftis had over the bitcoin currency was the lack of regulation and volatility associated with bitcoins. Scholars who participated in the conference agreed that there was no final verdict over the issue raised. It needed more analysis and the formation of law to get the issue resolved.
“Among the main arguments against Bitcoin is a high degree of risk (maisir) and uncertainty (garar), a lack of provision of real assets and state guarantees,” Kalimullina said.
Whereas Matthew J Martin of Blossom Finance, a Fintech startup based in Indonesia, said:
“As a payment network, Bitcoin is halal. Bitcoin goes beyond what more conventional closed banking networks offer,”
FIA recommends banning Bitcoins
Almost January 2017, the Federal Investigation Agency urged Pakistan to declare bitcoin/digital currencies illegal in Pakistan. The institution also recommended the government declare it illicit and advised taking strict action against anyone who violates or goes against the ban.
“Bitcoin / digital currency is not recognized by State Bank of Pakistan as a legitimate business and are causing huge monetary loss to the government exchequer. So it should be declared illegal with the inclusion of definition and distinct punishment of this emerging crime”, according to the cybercrime bill.
The fact was stated well in PECA documents.
Though the State Bank of Pakistan termed digital currencies illegal, no law could be applied to this situation. Therefore, the cybercrime bill was proposed to make this act part of state law.
State Bank of Pakistan warns against the use of Cryptocurrency.
On April 6, 2018, the state bank of Pakistan banned cryptocurrencies in the country. The state bank of Pakistan declared all types of cryptocurrencies, including Bitcoin, Litecoin, Pakcoin, OneCoin, DasCoin, Pay Diamond, or Initial Coin Offerings (ICO) tokens, are not legal or guaranteed by the state bank of Pakistan.
According to the circular by the State Bank of Pakistan:
“The SBP has not authorized or licensed any individual or entity for the issuance, sale, purchase, exchange or investment in any such virtual currencies/coins/tokens in Pakistan, All banks, development financial institutions, microfinance banks and payment system operators, payment service providers are advised to refrain from processing, using, trading, holding, transferring value, promoting and investing in virtual currencies/tokens. Further, they will not facilitate their customers/account holders to transact in VCs/ICO Tokens. Any transaction in this regard shall immediately be reported to the Financial Monitoring Unit (FMU) as a suspicious transaction.”
Although the State Bank of Pakistan advised the public to refrain from Cryptocurrency, it doesn’t put a straight ban due to the absence of a formal law to address this issue. Like the Reserve Bank of India, the state bank of Pakistan also cautioned the users of Cryptocurrency about the fraudulent activities that might result from digital currency usage.
As the SBP banned Cryptocurrency, the first Bitcoin exchange Urdubit decided to shut down, as FBR was already tracking and going against people involved in the bitcoin trade. On April 12, 2018, Urdu bit announced that it canceled all the orders after the SBP rolled out the circular.
Current Legal Status of Bitcoins in Pakistan:
Things are pretty awkward with the SBP circular out there and FBR tracing people involved in bitcoins trading. Everyone knows that bitcoins are not prohibited in the law of Pakistan. The tech guru, and renowned payment expert, Faisal Khan conducted in-depth research to determine if the law anywhere in any form limits people from using bitcoins, but failed to find even single evidence.
Where do we see Bitcoins Globally in the future?
The world is moving toward a cashless future, but not entirely with bitcoins. Bitcoins or Cryptocurrency can replace many applications and processes, but they can never eliminate physical cash. It has the anonymous transaction feature and a safe peer-to-peer transaction involving no intermediary. However, the one flaw with bitcoins is that they can hold nobody accountable for their value. Unlike the physical currency, the value of bitcoins is not controlled by a central bank, and the results can be fatal. The value of the money can fall to zero anytime, making it a lot volatile, so it is safe to say that bitcoins can never replace physical cash but can be used side by side.
Future of Bitcoins in Pakistan
Since the bitcoins became famous worldwide, many investments have been made in Silicon Valley too. Many entrepreneurs of Silicon Valley from Pakistan tried to pursue opportunities that came from digital currency. Undoubtedly, for developing countries like Pakistan, a cheaper, easier, and more transparent system for recording transactions can be a good option for many.
These blockchain and digital currencies are a blessing for people who don’t have bank accounts, estimated to be around 2 million. Not only this, a vast number of freelance workers saw great hope in using this digital currency system, which would save them from higher transaction charges and many other issues that they could have faced otherwise.
As mentioned earlier, no law restricts the use of bitcoins in Pakistan except that the SBPdoesn’tt support or appreciate digital currency usage. Therefore, the regulation of bitcoins through government platforms seems a dream only, as this is something that is not possible anytime soon. But, one should realize that Cryptocurrency does not necessarily need to be regularized through the government like the physical currency. Instead, it can be taken alongside the central bank system as this way of the transaction has eased many problems for many people in Pakistan.
With no physical bank presence required and no staff to take care of, a lot of money can be saved to run this transparent and standardized financial system in Pakistan. Therefore, Pakistan’s National Financial Inclusion Strategy should look into the matter to determine if the digital currency system can be incorporated as something good for people who strive for a better, safer, anonymous, and transparent financial system.