What Is Cryptocurrency and What Are the Regulations Governing Cryptocurrency in Pakistan?

Shahid Jamal Tubrazy — Tue, 27 Oct 2026 14:19:32 +0000

Cryptocurrency has become an important part of the global digital economy. Bitcoin, Ethereum, stablecoins and other blockchain-based assets are used for investment, trading, digital payments, decentralised finance and tokenisation. At the same time, cryptocurrency presents legal challenges involving fraud, money laundering, consumer protection, taxation, cybersecurity and cross-border transactions.

Pakistan is developing a formal regulatory framework for virtual assets. The Virtual Assets Act, 2026, and regulations issued by the Pakistan Virtual Assets Regulatory Authority (PVARA) represent a major development in the country's approach to cryptocurrency businesses. The new framework establishes a licensing and supervisory system for businesses providing regulated virtual-asset services in or from Pakistan.

Anyone investing in cryptocurrency or planning to establish a crypto exchange, brokerage, custody service, token-issuance business or blockchain startup should understand the applicable legal requirements before commencing operations.

What Is Cryptocurrency?

Cryptocurrency is a form of digital asset that uses cryptographic techniques and, commonly, blockchain or another distributed-ledger technology to record and verify transactions.

Unlike conventional currency issued by a central bank, many cryptocurrencies operate through decentralised networks. Transactions are validated according to the relevant network's rules, and ownership or control is generally demonstrated through cryptographic keys.

Examples include:

Bitcoin (BTC): A decentralised digital asset with a limited protocol-defined supply.

Ether (ETH): The native asset of the Ethereum network, used for network fees and other blockchain activities.

Stablecoins: Digital tokens designed to maintain a value linked to an asset, such as the US dollar. Their stability depends on their design, reserves, redemption arrangements and issuer.

Utility tokens: Tokens designed to provide access to products, services or functions within a digital ecosystem.

Tokenised assets: Digital tokens representing or referencing rights associated with assets such as securities, commodities, real estate or other financial interests.

Not every digital token has the same legal status. A token may constitute a virtual asset, a security or another regulated financial product depending on its characteristics, rights, structure and applicable law. The label used by its issuer is not conclusive.

How Does Cryptocurrency Work?

Cryptocurrency transactions are generally recorded on a blockchain or another distributed ledger. A user typically controls their assets through a wallet and cryptographic private keys.

A transaction may be broadcast to the network, validated under the applicable protocol and recorded on the ledger. Depending on the asset and network, transactions may be irreversible or difficult to reverse once confirmed.

Cryptocurrency can be held through:

Self-custody wallets: The user controls the private keys.

Custodial services: A third party holds or controls the assets or the means of accessing them.

Centralised exchanges: Platforms facilitate buying, selling or exchanging virtual assets.

Decentralised applications: Software enables certain blockchain transactions through smart contracts, sometimes without a conventional intermediary.

These arrangements create different legal and operational risks. For example, losing a private key may make assets inaccessible, while using a custodial exchange creates additional risks involving the service provider's solvency, security and compliance.

What Is the Legal Position of Cryptocurrency in Pakistan?

Pakistan's regulatory position has developed significantly. The Virtual Assets Act, 2026, establishes a dedicated framework for virtual assets and virtual-asset service providers. PVARA is responsible for licensing, supervising and regulating the relevant activities.

The framework should not be interpreted as a blanket guarantee that every cryptocurrency, exchange, token offering or investment scheme is lawful or approved. The legal position depends on the activity being undertaken, the applicable licence category, any restrictions imposed by the regulator and other relevant laws.

The official regulatory framework is available at:

PVARA: https://pvara.gov.pk/

PVARA Regulations: https://pvara.gov.pk/regulations

PVARA Licensing: https://www.pvara.gov.pk/licensing

Status in Pakistan:
https://cryptolawconsult.com/pakistan-opens-cryptocurrency-licensing-portal/

The Act applies to virtual-asset service providers carrying on, or holding themselves out as carrying on, virtual-asset services in or from Pakistan, as well as certain issuers offering, originating or distributing virtual assets in or from the country. The precise application must be assessed against the Act and relevant regulations.

The Virtual Assets Act, 2026

The Virtual Assets Act, 2026, provides the statutory foundation for Pakistan's virtual-asset regulatory system. It establishes PVARA and provides for the licensing, regulation and supervision of virtual-asset service providers.

The framework addresses matters including:

Licensing and regulatory supervision of virtual-asset businesses.

Anti-money laundering and counter-terrorism financing controls.

Governance and suitability requirements for relevant individuals.

Protection and safeguarding of client assets.

Cybersecurity, operational risk and internal controls.

Market conduct, disclosures and consumer protection.

Regulatory reporting and supervisory oversight.

The Act is particularly relevant to businesses that operate exchanges, provide custody, facilitate transfers, issue certain tokens or offer other regulated virtual-asset services.

Businesses should review the Act together with the regulations applicable to their specific activities rather than relying solely on general summaries or media reports.

What Is PVARA, and What Does It Regulate?

The Pakistan Virtual Assets Regulatory Authority (PVARA) is Pakistan's dedicated regulator for virtual assets and virtual-asset service providers under the 2026 framework.

The published framework identifies several categories of regulated services, including:

Advisory services.

Broker-dealer services.

Custody services.

Exchange services.

Lending and borrowing services.

Virtual-asset derivatives services.

Virtual-asset management and investment services.

Virtual-asset transfer and settlement services.

Fiat-referenced token issuance.

Asset-referenced token issuance.

Certain mining-related services.

A business may need authorisation for one or more categories, depending on what it actually does. A company offering exchange, custody and token-issuance services should not assume that approval for one activity automatically covers the others.

Official licensing guidance: https://www.pvara.gov.pk/licensing

PVARA Licensing Requirements for Cryptocurrency Businesses

Under the published framework, virtual-asset service providers must obtain the appropriate authorisation before offering regulated services in Pakistan. The process may involve a regulatory sandbox route or a No Objection Certificate (NOC) followed by incorporation and a licence application, depending on the applicant's circumstances and the applicable rules.

An NOC should not be treated as a full operating licence. Businesses must confirm the precise scope and conditions of any approval they receive.

Depending on the licence category and business model, the compliance process may involve:

Corporate structure: Establishing the appropriate Pakistani legal entity and identifying its shareholders, controllers and beneficial owners.

Capital and financial resources: Meeting the prescribed paid-up capital, liquidity and other prudential requirements.

Governance: Satisfying director, senior-management and fit-and-proper requirements.

AML/KYC: Establishing customer identification, risk assessment, transaction monitoring, sanctions screening and suspicious-activity reporting procedures.

Technology and cybersecurity: Implementing security controls, incident-response procedures, access management and business-continuity arrangements.

Client asset protection: Establishing appropriate custody, segregation, reconciliation and safeguarding arrangements where required.

Business plan: Documenting services, target markets, financial projections, risk management, outsourcing and cross-border operations.

Regulatory reporting: Maintaining records and submitting reports or notifications required by the applicable rules.

The precise requirements, capital thresholds, application documents and deadlines must be checked against the current regulations and the relevant licence category.

AML, KYC and Anti-Fraud Compliance

Cryptocurrency businesses can be exposed to money laundering, terrorist financing, sanctions evasion, stolen assets and fraudulent investment schemes. The regulatory framework therefore places significant emphasis on anti-money laundering and counter-terrorism financing controls.

Depending on the activity and applicable requirements, a regulated business should establish:

Customer due diligence and identity verification.

Beneficial ownership checks.

Risk-based transaction monitoring.

Wallet and blockchain transaction screening.

Sanctions screening.

Suspicious transaction reporting where required.

Record retention and regulatory cooperation.

Procedures for handling law-enforcement preservation and information requests.

Blockchain transaction monitoring can help identify suspicious flows, but a wallet address alone does not conclusively establish the identity of its controller. Investigations should be supported by appropriate technical analysis and legally obtained evidence.

Businesses should also avoid promising guaranteed cryptocurrency recovery. Recovery depends on matters such as asset tracing, the availability of assets, the cooperation of relevant platforms and authorities, and the applicable legal process.

Can Cryptocurrency Businesses Use Pakistani Banks?

Pakistan's banking position has also evolved. In April 2026, reporting on State Bank of Pakistan measures described a route for banks to open accounts for appropriately licensed virtual-asset service providers, subject to verification, due diligence and compliance conditions. Banks remained restricted from investing in or holding virtual assets using their own or customers' funds under the reported arrangements.

This development is important because it distinguishes a regulated business's banking arrangements from the bank itself dealing in cryptocurrency.

A virtual-asset business should confirm the current State Bank of Pakistan instructions, its PVARA authorisation and the receiving bank's onboarding requirements before assuming that a bank account is available.

Is Cryptocurrency the Same as Legal Tender in Pakistan?

No. The existence of a virtual-asset licensing framework does not, by itself, make cryptocurrency legal tender or require merchants to accept it as payment.

Legal tender, banking permissions, virtual-asset licensing and the legal status of a particular token are separate questions. A stablecoin linked to the US dollar, for example, is not automatically equivalent to a US dollar deposit or an officially recognised Pakistani payment instrument.

Businesses proposing to use cryptocurrency or stablecoins for payments, remittances or settlement should assess the applicable virtual-asset, foreign-exchange, payment-system, tax and other requirements before launching the service.

Cryptocurrency Taxation in Pakistan

The tax treatment of cryptocurrency depends on the facts, the nature of the transaction, the taxpayer's status and the applicable tax legislation and official guidance.

Relevant questions may include:

Whether profits arise from trading, investment, business operations or another activity.

Whether a token issuance or disposal gives rise to a taxable event.

How income, expenses, acquisition costs and proceeds are documented.

Whether cross-border payments, foreign holdings or related-party transactions create additional reporting obligations.

Whether withholding, sales tax or other tax provisions apply to the specific transaction.

Investors and businesses should retain exchange statements, transaction IDs, wallet records, acquisition costs, disposal proceeds and supporting documentation.

It would be unsafe to assume that cryptocurrency profits are automatically tax-free, or that a single tax treatment applies to every token and transaction. Tax advice should be based on the applicable provisions and the taxpayer's particular circumstances.

Legal Risks for Cryptocurrency Investors

Even when a platform or service is appropriately authorised, cryptocurrency investments can carry substantial risk.

Common risks include:

Market volatility and loss of capital.

Exchange insolvency or withdrawal restrictions.

Hacking, phishing and compromised private keys.

Fake investment platforms and fraudulent token offerings.

Rug pulls and misleading project representations.

Unclear token ownership or redemption rights.

Cross-border enforcement difficulties.

Fraudulent recovery services demanding advance fees.

Before investing, verify the provider's legal identity and regulatory status, read the relevant terms and risk disclosures, assess custody arrangements and understand how withdrawals and disputes are handled.

A claim that a project is “PVARA approved” should be independently checked. Regulatory registration or licensing of a business does not necessarily mean that every token it offers is endorsed, guaranteed or free from investment risk.

What Should a Crypto Startup Do Before Launching in Pakistan?

A startup should undertake a legal and regulatory assessment before offering services to Pakistani customers.

A practical compliance checklist includes:

Define the business model and identify each virtual-asset service.

Determine whether the Virtual Assets Act, 2026, and PVARA regulations apply.

Identify the correct licensing category and application route.

Review corporate structure, ownership and governance requirements.

Prepare a business plan, financial projections and capital assessment.

Develop AML/KYC, sanctions-screening and transaction-monitoring controls.

Document custody, client-asset safeguarding and cybersecurity arrangements.

Review token issuance documents, smart-contract risks and intellectual property ownership.

Assess tax, data-protection, consumer-protection and cross-border issues.

Verify the scope of regulatory permissions before commencing operations.

Foreign-incorporated crypto companies should not assume that incorporation outside Pakistan automatically exempts them from the framework. The location of the entity, its customers, its services and its activities may all be relevant to the legal analysis.

Conclusion

Cryptocurrency is a technology-driven category of digital assets with applications in investment, trading, payments and tokenisation. Its legal treatment depends on the asset, the activity and the jurisdiction.

In Pakistan, the Virtual Assets Act, 2026, and PVARA's licensing framework mark a significant move towards regulated virtual-asset activity. However, compliance requires more than obtaining a corporate registration or publishing a disclaimer. Businesses must identify the services they provide, obtain the appropriate authorisation and maintain the governance, financial, AML/KYC, cybersecurity and client-protection controls applicable to their activities.

Investors should independently verify providers and understand the risks before transferring funds. Startups should obtain legal and regulatory advice before launching an exchange, custody service, token offering or other virtual-asset business.

Author: Shahid Jamal Tubrazy — Cryptocurrency and Fintech Legal Consultant

Disclaimer: This article is for general informational purposes only and does not constitute legal, tax, investment or financial advice. Cryptocurrency regulation may change, and the application of the law depends on the facts of each case. Readers should consult the current legislation, official regulatory publications and a qualified professional before taking action.

DEV Community: Shahid Jamal Tubrazy

Pakistan has approved amendments to its anti-money laundering framework to include the Pakistan Virtual Assets Regulatory Authority, strengthening oversight of digital assets and financial crime risks.

What Is Cryptocurrency and What Are the Regulations Governing Cryptocurrency in Pakistan?