What is Bitcoin or Virtual Currency? Will it be wise for Pakistanis to invest in Digital Currency?

 

Introduction
Bitcoin (₿) is a digital currency, which is not backed by a central bank, government, or any financial institution. It is the form of currency that can be sent from user to user on the peer-to-peer bitcoin network without an intermediary. It is not wrong to say that Bitcoin is a digital currency without a single administrator.  

The cryptocurrency was invented in 2008 by an anonymous person or group of people using the name of Satoshi Nakamoto. The use of this currency started in 2009 when its implementation was released as open-source software.

Digital or Virtual Currency or Bitcoin
It may be defined as any type of digital unit, which can be used as a medium of exchange, a unit of account, or a form of stored value.As the name shows digital currency, which means that the payments exist purely in electronic form. 

It is not in tangible forms like any paper currency or a coin, but it exists in intangible form and can be transferred using computers. Intangible form means that it does not exist in physical form. 

Bitcoin is the most widely used and successful form of digital currency. It is possible to exchange digital currency by using modern technologies such as credit cards, smartphones, and online transactions.

How does Bitcoin Operates?

Bitcoin transactions are recorded with the help of a public ledger known as the Bitcoin blockchain. 

Blockchain is a distributed digital record on which Bitcoin is built. Blockchain is a linked body of data and consists of units called blocks that contain information related to each and every transaction. The most important part of the blockchain is that it records essential information about each transaction such as buyer and seller, date and time, total value, and a unique identifying code for each transaction or exchange. Entries are threaded together in a sequential order creating a chain of blocks. When block a block is added to a blockchain, it becomes available to anyone who desires to view it. Each block in the chain contains a number of transactions, and every time a new transaction occurs on the blockchain, a record of that transaction is added to every participant’s ledger. A blockchain acts as a public ledger of cryptocurrency transactions.

Blockchain is a type of Distributed Ledger Technology (DLT) in which transactions are recorded with an immutable cryptographic signature called a hash. After the verification of the transaction, it needs to be added to a blockchain, it will be placed through a hash algorithm to convert it into a unique number and letter.

What is Bitcoin Mining and How does it Work?

It is a process of verifying and adding new Bitcoin transactions in the public blockchain ledger.

Proof of work, the process is used in Bitcoin mining which is based on a difficult mathematical puzzle that helps to verify transactions. This process assists miners to earn a reward in the form of new Bitcoins. Bitcoin mining is a very tough job. Anyone who has mining hardware and internet access can be a participant and contribute to the mining community. Initially, it was easy and possible for the average person to mine Bitcoin, but seems very difficult nowadays. Mining has become more challenging requires more and more powerful computing resources.

Future of Bitcoin in Pakistan

For Pakistanis to make an investment in Bitcoin is very complex and complicated because of the ban on cryptocurrencies. Despite all these hurdles Bitcoin has now fully penetrated Pakistan. There are many Pakistani social media influencers with millions of followers advising and guiding the investors on how to invest and which type of crypto will give a return.

It is the time for government and concerned regulators to make a framework for virtual currency. Even hawala operators are helping the transfer of funds in offshore crypto exchanges in return for the payment made domestically. Leading financial institutions and investment banks in the world are assisting their clients in investing in digital currency. Investment in crypto is facing criticism from regulatory circles which might create problems for Financial Action Task Force compliance.

If investment in crypto has yet not been regularized, it means the people are misguided or forced to utilize unregulated platforms with little or no protection for investors. If regulators are willing to be more active then, they should write to European regulators and request them not to allow Pakistani residents on wallets such as Skrill (a digital wallet provider that offers online payment and money transfer services). It will encourage the growth of money laundering and hawala.

Now the State Bank of Pakistan and other concerned regulators must come out of their comfort zone and draft effective policies by deeply analyzing the positive and the negative impact of cryptocurrency on Pakistan’s economy.