As Pakistan stands at an important crossroads, it has to deal with how it can incorporate cryptocurrency into its overall financial system. The nation is actively exploring the potential of digital finance, underscored by recent governmental moves to regulate and incorporate cryptocurrency innovations. That starts with appointing key advisors to help make sure the process is holistic and equitable. Yet this path forward is not without tremendous difficulty, including the risk of promoting illicit financing and the call for strong regulatory vigilance.

Zhao's Appointment and Pakistan's Crypto Ambitions

Pakistan’s capital, Islamabad, has played a brave hand. To ensure fintech sandbox portability, they appointed Changpeng Zhao, a Chinese-born Canadian tech entrepreneur and founder of Binance, as an advisor to the Prime Minister’s Commerce Council (PCC). This appointment clearly communicates a strong intent to leverage Zhao’s expertise in the burgeoning cryptocurrency space.

“Pakistan is a country of 240 million people, over 60 percent of whom are under the age of 30. The potential here is limitless,” - Zhao

The appointment has stirred controversy. Zaki Khalid, a global commentator on security issues and geopolitics, sounded the alarm over Zhao’s history.

“Zhao, Binance’s co-founder, was implicated, then jailed, on money laundering charges. And only last month the proscribed TTP boasted about setting up their own Binance wallet for donations which could very well be forwarded for operational financing,” - Zaki Khalid

Pakistan has expanded their advisory pool, naming British Pakistani tech entrepreneur Bilal bin Saqib the “chief advisor” to Finance Minister Aurangzeb. This legislative action is meant to improve the federal government’s strategic understanding.

Navigating the Regulatory Landscape

The administration’s decision to embrace the promise of cryptocurrency certainly promises major regulatory challenges. And financial regulation advocate Ali Farid Khwaja pointed to the devastating implications of failing to regulate действия невидимой руки.

“Pakistan needs to regulate crypto. For a country where roughly 20 million people are already on offshore global trading platforms, the government is not collecting any taxes as those platforms are not locally licensed,” - Ali Farid Khwaja

Mona Thakkar, an expert in financial crime prevention, supported this view, despite his support for responsible and regulated adoption.

“A better approach will be to encourage not adoption, but responsible and regulated adoption. That means, first, offshore unregulated platforms should be immediately banned with strict enforcement. Secondly, the companies offering these services should comply with all domestic regulations,” - Mona Thakkar

Khwaja acknowledged that Pakistan’s old method of dismissing cryptocurrency was untenable.

“Till now, Pakistan had taken the approach of ignoring it. Now, it is too large and has gained so much global adoption that it would be naive to maintain the strategy of pretending it doesn’t exist. Hence, I think having a council is a step in the right direction,” - Khwaja

The United Nations Security Council’s Counter-Terrorism Committee is warning of the dangers. More broadly, they are concerned about terrorists like ISIS/ISIL and al-Qaeda using digital proxies to underwrite their activities.

Security Concerns and Illicit Financing

The most immediate and commonly expressed concern is the use of cryptocurrencies in facilitating crime and other illicit activities. Cryptocurrencies are making inroads into hawala transactions. Even more concerning, this trend provides novel opportunities for bad actors to shift money under the radar. Hawala is a traditional informal remittance system outside of banking regulation based on trust rather than physical transfer.

Thakkar highlighted the recent use of PayPal by Tehrik-i-Taliban Pakistan (TTP) to facilitate their crowdfunding efforts.

“Beyond cryptocurrency, TTP in its latest crowdfunding appeals is also utilising PayPal addresses. This suggests that TTP may be using foreign-based accounts of financial intermediaries or supporters operating outside of Pakistan, in countries where PayPal is available, to escape regulatory oversight,” - Mona Thakkar

Recent reports indicate that TTP and its subgroups are increasing their use of digital assets. They’re probably deepening this tactic to transfer money below the radar. Other cryptos, such as Monero (which is 28th in market capitalization), focus on privacy by default. This consumer-centric design of anonymity makes them attractive to those seeking to avoid the law. Bitcoin, the most well-known of all cryptocurrencies, was created with a fixed supply of only 21 million coins. That’s how its pseudonymous creator, Satoshi Nakamoto, designed it.

Skepticism and Alternative Perspectives

Even though there is excitement to incorporate cryptocurrency in Pakistan, not all experts are convinced that the country will benefit from it. Perhaps none were more poignant than Ibrahim Khalil who challenged the utility of crypto for a nation such as Pakistan.

“Pakistan needs cryptocurrency like a fish needs a bicycle. The focus seems to be on promoting crypto and blockchain rather than defining what problem it solves. Globally, blockchain hasn’t lived up to its hype, and beyond Bitcoin, there’s no compelling success story,” - Ibrahim Khalil

Khalil further questioned the appeal of Pakistan as a place for either digital mining companies or digital asset providers.

“Global digital mining companies and digital asset providers require abundant and cheap energy, a robust legal framework, and reliable internet. It is highly unlikely that mining firms or AI server farms would choose Pakistan just because we started promoting crypto,” - Ibrahim Khalil