Cryptocurrencies largely dominated the discussion in the financial world in recent years, as analysts and industry professionals were trying to come to grips with the potential and the popularity of the new trend.
As governments and regulatory authorities struggled to keep up with the growth exhibited by altcoins, many of them proceeded to impose bans and restrictions on the industry – including Pakistan. As Iran revisits its position with regard to cryptocurrencies, how is this lack of coordination set to affect economic relations between the two countries?
The Rise of Altcoins
Although cryptocurrencies such as Bitcoin were originally devised as a true alternative to fiat currency, directly opposing centralized control and state regulation, the reality is that they did not gain much ground in the real economy.
Instead, cryptocurrency trading has truly boomed, with coins such as Litecoin, Stellar, Ripple and Ether rising to the top alongside Bitcoin and Bitcoin Cash. Cryptocurrency owners continue to mainly use their coins to trade instead of making transactions and purchasing goods in brick-and-mortar businesses, with some countries also officially allowing and regulating cryptocurrency trading in the forex market. With more and more traders and investors joining in, more altcoins have appeared all over the globe – even national state-backed cryptocurrencies, like Venezuela’s Petro. While several analysts have criticized the volatility of altcoins, ranking them high in terms of risk management and mitigation, the volume of transactions continues to grow.
Pakistan Bans Cryptocurrencies
But other states, like Pakistan and its neighbour India, have refused to greenlight digital coins and have effectively imposed restrictions upon them. In April last year, Pakistan implemented a ban on cryptocurrency trading in the country, which led to trading platforms shutting down – but also an apparent rise in alternative underground channels of dealing in altcoins. This also meant that shady conduct associated with economic crime or even terrorism funding largely went unchecked. Now, Pakistan is set to further build on its tough stance on cryptocurrencies by introducing new rules regulating the market in an effort to battle money laundering and related crimes. This move comes mainly at the behest of the Financial Action Task Force (FATF), an international body charged with monitoring action against economic crime and corruption. Meanwhile, the country’s Securities and Exchange Commission has announced a crackdown against companies suspected of using altcoins for illegal purposes.
Iran Looking to Harness Blockchain
Beyond trading, there is an aspect of the new industry that is of particular interest across industries: the underlying tech powering cryptocurrencies, ranging from Bitcoin’s blockchain to more niche solutions like the zk-SNARK zero-knowledge proofs behind Zcash. This is considered extremely important in Iran, as the country experiments on how to revise its initially negative position towards cryptocurrencies. Amidst economic pressure from the US, long-time global antagonist, Iran has developed its own plans to launch a national cryptocurrency called PayMon. The Central Bank of Iran is also exploring ways to harness blockchain tech in an effort to revamp the country’s banking and financial system through its Borna initiative. Although Iran’s economy is far from dependent on digital coins, in this context, Pakistan’s complete ban on cryptocurrencies could put a strain on economic relations between the two countries.
As Iran continues to foster growth by tapping into the potential of digital currencies, Pakistan’s rumoured softening of its harsh position on altcoins might open up new channels of economic cooperation between the two states.