Cryptocurrencies and NFTs in Pakistan

Rascim Khattak.

Cryptocurrencies and NFTs in Pakistan

Recently, cryptocurrencies and NFTs have been a hot topic. The total value of cryptocurrency assets is estimated to be at an astonishing $3 trillion (1), whilst in 2021 the NFT market saw over $23bn in trading volume (2). They have proven to be controversial, with countries such as Pakistan and China banning crypto-related activities. However, despite its prevalence, there is much confusion about what they actually are.

 What is Cryptocurrency?

 Quite simply put, cryptocurrencies refer to digital assets that are monitored by a peer-to-peer network called blockchain. The support by blockchain allows an almost impenetrable record of transactions to keep track of who owns what. The name cryptocurrency comes from being secured by cryptographic algorithms. This makes it nearly impossible for counterfeit transactions or double spending, making it an ideal medium of exchange for security. Examples of popular cryptocurrencies include Bitcoin and Litecoin.

 The decentralised structure of crypto allows them to operate without central authority such as banks or governments, essentially by theory, rendering them immune to government intervention.

 Cryptocurrencies are used for a variety of reasons, as it has its significant advantages: 

1)    Short settlement times- faster money transfers

2)    Low fees

3)    Blockchain technologies underlying cryptocurrencies render it a secure medium of exchange; decentralised systems do not collapse at a single point of failure

4)    Potential for high rewards; at the cost of its high risk.

What is an NFT?

A non-fungible token (NFT) refers to a digital asset on a blockchain that contains a unique identification code to distinguish itself. NFTs are a unique concept, with their main purpose being a way to represent individual's assets. For example, an NFT can represent artwork or real estate.

 NFTs render the purchase, selling, and trading of assets more efficient, by reducing probabilities of fraud, and its blockchain technologies prevent these unique tokens from being replicated.

 In 2021, the NFT market, which has been centered around collectibles was huge. In 2021, a digital artist sold a group of NFTs for almost $70 million. By August 2021, there were almost 280,000 unique buyers and sellers of NFTs (3).

The ban of cryptocurrencies in Pakistan

 As you can tell, there has been tremendous growth in crypto-related activities in the past few years, and it is only growing exponentially. Despite this, it has not stopped major economies from banning the trade of crypto, such as China and Saudi Arabia. In 2018, the State Bank of Pakistan (SBP) issued a circular prohibiting banks from dealing with cryptocurrency exchanges.

 However, despite these complications and roadblocks, the cryptocurrency market is thriving, especially with Pakistanis. It is estimated that over 9 million people in Pakistan own cryptocurrencies, as well as owning $20bn worth of cryptocurrencies (4).

 Despite the bans imposed by the SBP, Pakistanis have found other ways to enter the world of cryptos. A large handful of investors have made use of external bank transfer apps in order to trade cryptocurrencies. A key way Pakistanis were able to invest in cryptos meant they could not invest using PKR. First, they are required to transfer to someone in rupees, and then buy a cryptocurrency. However, the rate depends on the exchange rate at the time, which brings up a problem; the smaller a purchase, the more expensive it may be, as the amount of currency bought can make a difference. Typically, Pakistanis use the USDP as a way to invest in cryptocurrencies.

 [1] https://time.com/6115300/cryptocurrency-value-3-trillion/

 [2] https://www.forbes.com/sites/ninabambysheva/2021/12/23/nfts-generated-over-23-billion-in-trading-volume-in-2021/

 [3] https://www.statista.com/statistics/1266322/nft-user-number/

 [4] https://www.arabnews.com/node/1993221/business-economy

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