F I N T E C H

T H E M E

AUTHOR: DR. MISHAL AHMED

 C RY P TO C U R R E N C Y

• What is cryptocurrency?

• Why cryptocurrency?

• How does cryptocurrency work?

At its core, cryptocurrency is typically decentralized digital money designed to be used over the
internet. Bitcoin, which launched in 2008, was the first cryptocurrency, and it remains by far the
biggest, most influential, and best-known. In the decade since, Bitcoin and other cryptocurrencies
like Ethereum have grown as digital alternatives to money issued by governments.

https://www.coinbase.com/learn/crypto-basics/what-is-cryptocurrency
 BITCOIN OVER TIME

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 W H AT I S C R Y P T O C U R R E N C Y ?
• The most popular cryptocurrencies, by market capitalization, are Bitcoin and Ethereum

• Crypto makes it possible to transfer value online without the need for a middleman like a bank or
payment processor.

• Cryptocurrencies are usually not issued or controlled by any government or other central authority.

• If a bank or government isn’t involved, how is crypto secure? It’s secure because all transactions are vetted
by a technology called a blockchain.
 BLOCKCHAIN

 A cryptocurrency blockchain is like a bank’s balance sheet or ledger. Each currency has its own
blockchain, which is an ongoing, constantly re-verified record of every single transaction ever made using
that currency.

 Unlike a bank’s ledger, a crypto blockchain is distributed across participants of the digital currency’s entire
network

 No company, country, or third party is in control of it; and anyone can participate. A blockchain is a
breakthrough technology only recently made possible through decades of computer science and
mathematical innovations.

 https://aws.amazon.com/what-is/blockchain/?aws-products-all.sort-by=item.additionalFields.productNam
eLowercase&aws-products-all.sort-order=asc
 KEY CONCEPTS

• Privacy ~ you don’t need to provide unnecessary personal information to the merchant.

• Safety ~ the network powering Bitcoin has never been hacked

• Irreversibility ~ unlike a credit card payment, cryptocurrency payments can’t be reversed

• Transparency ~ every transaction on the Bitcoin network is published publicly, without exception

• Portability ~ available to you no matter where you are in the world or what happens to any of the global
finance system’s major intermediaries

• Security ~ secured by blockchain which is constantly checked and verified by a huge amount of computing
power

• Transferability ~ uses less time to process and less transaction cost relative to fiat
 HOW TO USE BITCOIN?
• https://bitcoin.org/en/getting-started

• Step 1: Inform yourself

Securing your wallet, Bitcoin prices are volatile, Transactions are irreversible, Government taxes and
regulations
• Step 2: Choose a wallet

• Step 3: Get Bitcoin

• Step 4: Spend Bitcoin

https://spendabit.co/

https://bitcoinwide.com/

https://btcmap.org/
 C RY P TO M I N I N G

• Most cryptocurrencies are ‘mined’ via a decentralized (also known as peer-to-peer) network of computers.
But mining doesn’t just generate more bitcoin or Ethereum - it’s also the mechanism that updates and
secures the network by constantly verifying the public blockchain ledger and adding new transactions.

• How does the network encourage miners to participate in maintaining the blockchain? Bitcoin as an
example, the network holds a lottery in which all the mining rigs around the world race to become the first
to solve a math problem, which also verifies and updates the blockchain with new transactions. Each winner
is awarded new bitcoin, which can then make its way into the broader marketplace.

• https://www.youtube.com/watch?v=mrtSAgcpack
 VA L U E O F C R Y P T O C U R R E N C Y
• The economic value of cryptocurrency, like all goods and services, comes from supply and demand.

• Supply refers to how much is available—like how many bitcoin are available to buy at any moment
in time. Demand refers to people’s desire to own it—as in how many people want to buy bitcoin and
how strongly they want it. The value of a cryptocurrency will always be a balance of both factors.
• There are also other types of value. For example, there’s the value you get from using a
cryptocurrency.
• Many people enjoy spending or gifting crypto, meaning that it gives them a sense of pride to support
an exciting new financial system.
• Similarly, some people like to shop with bitcoin because they like its low fees and want to encourage
businesses to accept it.
 S TO R A G E O F C RY P TO C U R R E N C Y
• There are different types of secure wallet options you can go with, including crypto exchanges, cold
storage wallets, paper wallets, and hot crypto wallets. If you want to access your crypto more
quickly, choose either a crypto exchange or hot crypto wallet. If you’d like to focus more on security
and storing cryptocurrency offline, cold storage or paper wallets are ideal options.
• Crypto exchange is an application that lets you access crypto and carry out crypto-related
transactions. Most wallets are free to download but involve a transaction fee for sending or selling
cryptocurrency. Coinbase and Binance are all popular examples of cryptocurrency exchanges.
• A cold storage wallet is a type of wallet that is not connected to the internet. With these types of
wallets, your crypto is safe from hackers, so these are ideal for storing large amounts of
cryptocurrency. Many users go for Trezor and Ledger.
 S TO R A G E O F C RY P TO C U R R E N C Y
• Unlike a cold wallet, a hot crypto wallet is connected to the internet. That means you need an internet
connection to access your crypto. Although these wallets are more susceptible to hacks, they make
accessing your crypto frequently for transactions easier. Guarda and Mycelium are good picks based on
security.
• Although paper wallets are now phasing out, they‘re still practical for storing cryptocurrencies. A typical
paper wallet contains your private keys and your address printed on it. Paper wallets are relatively safe, but
if the paper gets stolen or goes missing, the thief could easily read your keys and take your crypto, or you
lose your crypto forever.
• There are custodial and noncustodial type of wallets. Custodial wallets are hosted by a third party that
stores your keys for you. Noncustodial wallets are wallets in which you take responsibility for securing your
keys. There are software and hardware type of wallets.
• You can have a noncustodial software hot wallet, a noncustodial hardware cold or hot wallet, or a custodial
hardware cold wallet. These are the most common types, but you may also encounter other combinations.
 S O F T WA R E A N D H A R D WA R E WA L L E T S
• Software wallets

Software wallets include applications for desktops and mobile devices. These wallets are installed on a desktop or
laptop computer and can access your cryptocurrency, make transactions, display your balance, and much more. Many
mobile wallets can facilitate quick payments in physical stores by scanning a QR code. Trezor, Electrum, and
Mycelium are examples of wallets that you can use. Software wallets are generally hot wallets.
• Hardware wallets

• Hardware wallets are the most popular type of wallet because you can store your private keys and remove them from

your device. These devices resemble a USB drive, and modern hardware wallets have several features. You can make
a cryptocurrency transaction on your computer or device by plugging in the hardware wallet. Most of them can sign
cryptocurrency transactions automatically without requiring you to enter the key, circumventing a hacker's ability to
log your keypresses or record your screen. Hardware wallets are generally considered cold wallets because they
don't have an active connection until they are plugged in. (https://bitcoin.org/en/choose-your-wallet?step=1)
 C RY P TO G R A P H Y A N D E N C RY P T I O N

Keys: These are the credentials stored in the wallet. Like a safe-deposit box, there are two keys necessary for each
transaction.
 Public: This is the technology necessary to encrypt and decrypt transactions. It is "one way," meaning that it easily
unlocks transactions, but it can't be used to reverse the transaction. This key enables the blockchain to be
uninterrupted.
 Private: This is the passcode that transacting parties initiate so that the transaction is unique to themselves. To
spend Bitcoin, one must know their own private key and digitally sign the transaction. The party's signature is
verified by the public key without revealing the private key.
If the party loses its key, the Bitcoin in the wallet becomes essentially worthless, as it is unrecognizable and
inaccessible to anyone.
According to a blockchain analytics company, roughly 20% of Bitcoins have been lost by parties who misplaced the
private key.
Additionally, if the private key is revealed in a security breach, the value of Bitcoins can be stolen. In 2022,
cryptocurrency investors lost a record $3.8 billion to hackers.
DIFFERENCE BETWEEN TRADITIONAL
M O N E Y A N D C RY P TO
• FUNCTIONS OF TRADITIONAL MONEY

• Medium of exchange ~ It facilitates the buying and selling of goods, thereby eliminating the need for double coincidence
of wants as under barter.

• Measure of value/Unit of Account ~ The values of various commodities are expressed in terms of money. This measure
is universally accepted and standardized. Money as a measure of value has made transactions simple and quick.

• Store of value ~ Individuals store money for the rainy day and to meet unforeseen contingencies. People also store
money to take advantage of the changes in the rate of interest. Thus, money preserves value through time and space.
Money as a store of value implies postponing consumption to the future and thus the link between current and future
times is crucial. In that respect, money becomes an ‘asset’ because it is a claim. Currency (or cash) is the most liquid
form of assets; money can be very cheaply and immediately exchanged for goods and services and its value is stable at
least over a short period of time.
 DIFFERENCE BETWEEN TRADITIONAL
M O N E Y A N D C RY P TO
• FUNCTIONS OF CRYPTOCURRENCY

• Measure of value ~ The extreme volatility of the digital currencies’ exchange rates is a problem when becoming a useful
unit of account. For example, the value of a bitcoin, compared to other currencies changes greatly on a day-to-day basis.
Retailers must recalculate prices very frequently and this can be costly and confusing. The uncertain market value of
digital currencies would make it very difficult to use as a valid reference point for setting consumer prices.

• Store of value ~ Supply of digital currencies is totally assured because of the algorithmic essence of its production.
However, demand is more uncertain. Then, the public belief that digital currencies will continue being on demand is
crucial for them to function as a store of value. Thus, the worth of digital currencies as a store of value over the long run is
directly linked to their demand, and this relates to what users believe about the future success of the currency. There are
two major concerns with cryptocurrency as store of value ~ extreme volatility and theft.

• Medium of exchange ~ The number of retailers worldwide that are willing to receive payment in digital currencies is
increasing.
 BITCOIN AS MEDIUM OF EXCHANGE

• Number of bitcoin transactions per month since 2009 to 2017

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 A LT E R N AT I V E S T O C R Y P T O C U R R E N C Y

• Central Bank Digital Currency • Stable Coins

Currently, whether central banks should issue CBDCs is a “Stable cryptocurrencies” such as Tether could in principle
question open to debate. On the one hand, it would be solve the problem of the great volatility that
efficient because it could make use of the new technology. cryptocurrencies such as Bitcoin or Ether display.

Another concern is that if these currencies are not issued
by the central bank, at some point these currencies will
become the alternative of legal tender.
CBDC could act as a highly effective form of money and
promote true price stability, as the real value of CBDC
could be easily held stable over time.
The first type of stablecoins are the “collateralized” (or
“backed”) cryptocurrencies, which are tied to the value of
an external (stable) asset (fiat currency, a cryptocurrency,
gold, and property). The second main group of stablecoins
are those that are “non-collateralized” or non-backed,
meaning they are not linked to any external value. They
follow an algorithm instead, which controls currency
volatility.
 I S C RY P TO C U R R E N C Y A L L O W E D A S
P E R I S L A M I C F I N A N C E S TA N D A R D S ?
• Why is cryptocurrency a halal investment?

Cryptocurrency in general and bitcoin in particular is approved by many prominent scholars like
Dr. Yasir Qadhi. There is no parallel of crypto that can be drawn with gambling.
• Why is cryptocurrency a haram investment?

There is uncertainty about the originator of the asset, the value of the currency is based on
ambiguous criteria and crypto can be used for illegal activities.
 C RY P TO C U R R E N C Y A D O P T I O N A N D
CONTROVERSY
• El Salvador adopted Bitcoin as its legal tender in 2021 to resolve deep economic woes. Public adoption has
been painfully lackluster due to limited internet access, inconsistent technology capabilities and a lack of
enforcement by municipalities. The country has lost an estimated $40 million of its total investment in
Bitcoin since adoption, leading many to question its value as legal tender given that the country is still
struggling to meet its debt obligations and public health needs. Officials are doubling down, mandating
cryptocurrency literacy courses in their public schools beginning in 2024.

• Ukraine posted two crypto wallets at the beginning of the Russian invasion to raise funds, attracting more
than $10.2 million within the first week to fund both humanitarian needs and military support. Ukraine
anticipates rebuilding its economy using blockchain technology. Kuna, an exchange led by Michael
Chobanian, has emerged as the most popular cryptocurrency exchange in Ukraine with about 60,000 active
traders and over $100 million in assets.
 C RY P TO C U R R E N C Y A D O P T I O N A N D
CONTROVERSY
• Iran has found Bitcoin to be an effective method to bypass U.S. financial sanctions on the country. Because of its
abundant natural resources, Iran has been able to easily pivot to producing electricity for Bitcoin mining.

• However, illegal Bitcoin mining activities have created significant electrical outages in the country during peak usage
periods. All mined Bitcoin, currently valued at approximately $1 billion, must be sold to Iran's central bank. Iran also
began accepting imports using cryptocurrency, placing its first international order worth $10 million.

• To this end, Iran and Russia signed a bilateral agreement on cryptocurrency cooperation in November 2018. Two
months later, in January 2019, Iran’s Trade Promotion Organization conducted negotiations on using cryptocurrency for
financial transactions with Russia and seven other countries, including Austria, Bosnia-Herzegovina, England, France,
Germany, Switzerland, and South Africa. While cryptocurrency may offer Iran and other countries the opportunity to
bypass sanctions and boost trade, it is by no means a panacea for such outcomes and comes with a host of obstacles, such
as price volatility, energy consumption, and evolving regulation.

• Bitcoin has also attracted controversy due to its climate change implications. Mining Bitcoin requires significant
electricity use and is responsible for 0.1% of global greenhouse gas emissions.
 B A N O N C RY P TO C U R R E N C Y

• It’s easiest to name the countries where crypto is outright illegal. According to the U.S. Library of Congress, as
of November 2021, a total of nine countries have banned cryptocurrency completely. These countries are
Algeria, Bangladesh, China, Egypt, Iraq, Morocco, Nepal, Qatar and Tunisia.
• Another 42 countries have an implicit ban on the asset, generally by the means of not allowing financial
institutions in the given country to take on crypto companies as clients.
• In general, wherever crypto is legal, it is subject to:

• Anti-money laundering (AML) regulations: This allows the government to keep an eye on crypto trades to
prevent illicit financial activity.
• Taxation: Cryptocurrency taxes vary from country to country. For example, in the U.S., the IRS taxes crypto
as property, not income. However, several countries in the European Union tax it as income, with no value-
added tax (VAT) being applied. A VAT is a tax on goods and services, hence the contrast with how it is treated
in the U.S.
 C RY P TO C U R R E N C Y I N I N D I A A N D
CHINA
• China's government said it was especially concerned about crypto mining's effect on the environment and
people using digital currencies for fraud and money laundering.
• China's central bank announced that all transactions of crypto-currencies are illegal, effectively banning
digital tokens such as Bitcoin in 2019.
• "Virtual currency-related business activities are illegal financial activities," the People's Bank of China said,
warning it "seriously endangers the safety of people's assets".
• China was one of the world's largest crypto-currency markets. Fluctuations there often impact the global price
of crypto-currencies. The price of Bitcoin fell by more than $2,000 in the wake of the Chinese announcement.
• China’s approach in nominally banning cryptocurrencies has proven to be inefficient. In contrast, the U.S.
refrains from prescribing any premature judgment upon cryptocurrency as a whole. At the moment, the U.S.
approach seems to strike a better balance between investor protection and financing technological development.
• Cryptocurrencies in India fall under the virtual digital assets (VDAs) category and are subject to taxation. The
profits generated from cryptocurrency trading are taxed at a rate of 30 per cent.
 C RY P T O C U R R E N C Y I N PA K I S TA N

• Cryptocurrency has been banned numerous times in Pakistan. It was banned in 2023 with restrictions on
transactions and trading in Bitcoin and other cryptocurrencies.

• There are no anti-money laundering regulations and taxation laws for cryptocurrency in Pakistan.

• Currently, over 9 million people, which represents 4.1% of Pakistan’s total population own
cryptocurrency. In 2022, interest in Bitcoin has increased in Pakistan as suggested by a boost in online
searches related to bitcoin and cryptocurrency following the government’s discussions for cryptocurrency
regulation.
• Crypto adoption in the country has been relatively high, as Pakistani citizens were reportedly holding USD
20 billion worth of crypto in 2021. Pakistan is planning to launch a central bank digital currency in 2025.
 C RY P T O C U R R E N C Y I N PA K I S TA N

• A regulatory framework for this asset class should be developed in Pakistan at the earliest possible
opportunity. A lack of an appropriate legal framework causes the demand for cryptocurrency to shift
towards unregulated or underground operators. The public is forced to use unregulated platforms where they
have little protection as an investor because they have no other option.

• Cryptocurrencies are gaining increasing popularity in the nation with the annual trading volume for
Pakistan-based wallets going up to $25 billion in 2023.

• We could consider alternatives of renewable energy for crypto mining like a Bitcoin mining project was
proposed with hydroelectric power in KPK.

• Pakistan government could generate revenue by taxing bitcoin wallets in the country and charging
transaction fees to crypto-exchanges operating locally like Binance.
 W H Y I S C RY P TO C U R R E N C Y T H E
FUTURE OF FINANCE?
• Cryptocurrencies are the first alternative to the traditional banking system and have powerful
advantages over previous payment methods and traditional classes of assets.

• Cryptocurrencies can be used to buy goods or services or held as part of an investment strategy, but
they can’t be manipulated by any central authority, simply because there isn’t one.

• Digital currencies provide equality of opportunity, regardless of where you were born or where you live. If
you have a smartphone or another internet-connected device, you have the same crypto access as everyone
else.

• Cryptocurrencies create unique opportunities for expanding people’s economic freedom around the
world. In places where inflation is a key problem, cryptocurrencies can provide an alternative to
dysfunctional currencies for savings and payments.