DefinePK

Research Objective

To analyze whether cryptocurrencies can replace fiat money in Pakistan by assessing the risks and rewards, evaluating the volatility of leading cryptocurrencies against the Pakistani Rupee (PKR), and identifying key factors that promote or inhibit mainstream crypto adoption.

Methodology

A mixed methods approach was utilized, combining a survey of 123 cryptocurrency users in Pakistan, analysis of historical price data for Bitcoin, Ethereum, and the Pakistani Rupee (PKR) from January 2018 to December 2022, and thematic analysis of adoption barriers and promoters. An online survey measured perceived risks and rewards on a 5-point Likert scale. Relative VIX was calculated for cryptocurrencies and fiat currency based on standard deviations in monthly returns, with one-way ANOVA used to compare volatility. Thematic analysis identified key themes on adoption barriers and motivators. The study adapted the Technological Acceptance Model (TAM).

Methodology Flowchart

                        graph TD;
    A["Define Research Objectives & Questions"] --> B["Adopt TAM Framework"];
    C["Collect Survey Data from 123 Users"] --> D["Analyze Perceived Risks & Rewards"];
    E["Obtain Historical Price Data BTC, ETH, PKR"] --> F["Calculate Relative VIX & Perform ANOVA"];
    G["Conduct Thematic Analysis of Adoption Factors"] --> H["Synthesize Findings"];
    D --> H;
    F --> H;
    G --> H;
    H --> I["Formulate Conclusion & Implications"];                    

Discussion

The study suggests that while cryptocurrencies offer attractive rewards, particularly investment gains and inflation protection, substantial perceived risks and higher volatility compared to fiat currency in Pakistan's context limit their potential for mass adoption as a replacement for PKR. Wider adoption is contingent on supportive regulations that address risk management and expand everyday utility. The findings align with the TAM, indicating that perceived usefulness and ease-of-use, influenced by risks and rewards, are crucial for user acceptance.

Key Findings

Security issues were the top perceived risk among users, while financial gains were the top perceived reward. The historical volatility of Bitcoin (BTC) and Ethereum (ETH) was significantly higher than that of the Pakistani Rupee (PKR). The main barriers to adoption were lack of regulatory clarity, price instability, and limited merchant acceptance. Key promoters included decentralization, inflation resistance, and investment gains. Perceived rewards significantly outweighed perceived risks on average. International money transfers were seen as the most useful application of cryptocurrencies, while domestic payments, retail shopping, and bill payments rated poorly.

Conclusion

Under current conditions, cryptocurrencies are unlikely to fully replace fiat money in Pakistan. However, they may see increased niche adoption. Achieving wider adoption depends on effectively managing risks and increasing the everyday utility of cryptocurrencies.

Fact Check

1. Sample Size: The study surveyed 123 cryptocurrency users in Pakistan. (Confirmed in Methodology section)
2. Volatility Comparison: BTC and ETH had 2-3 times higher volatility versus PKR, with relative VIX scores of 2.51 (BTC), 2.38 (ETH), and 0.92 (PKR). (Confirmed in Results section, Table 2)
3. Time Period for Data: Historical price data was obtained for the period January 2018 to December 2022. (Confirmed in Methodology section)

Mind Map