US sanctions, bankrupt banks and the drying up of foreign aid and cash transfers since the Taliban takeover have left the Afghan economy in tatters. Crypto comes to the rescue.
After the Taliban takeover in August last year, 22-year-old Farhan Hotak, from Zabul province in southern Afghanistan, was left with no cash on hand.
Mr. Hotak’s only source of income was a few hundred dollars of bitcoin in a virtual wallet. After converting it into traditional currency, Hotak managed to flee to Pakistan with his family of ten.
“After the Taliban takeover, crypto spread like wildfire across Afghanistan,” he said. “There is almost no other way to get money”.
Mr. Hotak and his friends use Binance’s P2P crypto exchange, which allows them to buy and sell their coins directly with other users on the platform. Mr. Hotak finds temporary refuge in Pakistan, trades Bitcoin and Ethereum again and is now touring around Afghanistan again, vlogging and educating people about cryptocurrencies – digital money without physical form that can have value.
Cryptocurrency fans say they are the future of money and will discourage people from relying on banks. And in Afghanistan, it is the banks that have stopped working, leading people to turn to cryptocurrency not just to trade, but to survive.
Data from Google Trends shows that web searches in Afghanistan for “bitcoin” and “crypto” surged in July shortly before Kabul took power, while Afghans queued outside banks in vain attempts to withdraw cash.
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Following the Taliban takeover in August 2021, crypto usage surged. Last year, data company Chainalysis ranked Afghanistan 20th out of 154 countries it assessed in terms of their crypto adoption.
Just a year earlier, in 2020, the company considered Afghanistan’s crypto presence so low that it was completely excluded from its ranking.
According to Sanzar Kakar, an Afghan-American who in 2019 developed HesabPay, an app that helps Afghans transfer money using crypto, the country’s “crypto revolution” is the result of US sanctions against the Taliban and the Haqqani Group who are now in power.
The sanctions have meant that transactions with Afghan banks have come to a virtual standstill. The US has seized $7.1 billion (£5.4 billion) worth of assets from Afghanistan’s central bank and ended transfers of US currency. Companies in Poland and France commissioned the printing of the shipments in Afghan currency.
The Society for Worldwide Interbank Financial Telecommunication, known as the Swift system that underpins international financial transactions, suspended all services in Afghanistan.
The liquidity crisis that followed meant that commercial banks could not lend money and private customers could not withdraw their own money from banks.
Already a war-torn economy, with 80% of GDP coming from foreign aid and donors, Afghanistan was on the brink of collapse.
“We’re using crypto to try to solve this problem that 22.8 million Afghans are marching towards starvation, including a million children at risk of starvation this winter,” Mr Kakar said.
An app like Mr Kakar’s HesabPay allows instant transfers of funds from one phone to another without touching banks, the Afghan government or the Taliban. In the three months since its launch, the app has seen over 2.1 million transactions and 380,000 active users.
Aid organizations have also recognized the potential of crypto in Afghanistan.
In 2013, Roya Mahboob founded the Digital Citizen Fund, an NGO that teaches computer programming and finance to young Afghan women. The organization had 11 women-only IT centers in Herat and two more in Kabul, where 16,000 women were taught everything from Windows software to robotics.
After the Taliban takeover, the group refocused its efforts on offering cryptocurrency education to young women via Zoom video calls.
The Digital Citizen Fund also began sending money to Afghan families via crypto to help them provide food and shelter and, in some cases, to help people leave the country.
“Crypto has been critical to Afghanistan over the past six months. Everyone talks about trade. It got to a point where I got on a plane to Kabul and people were talking about Dogecoin and Bitcoin,” Ms Mahboob told the BBC.
On the rise in Afghanistan are so-called “stablecoins,” virtual coins pegged to the US dollar that eliminate the volatility normally associated with crypto. Recipients then exchange the stablecoins at wallets for the local currency.
They can also be sent directly to recipients without the need for a bank account.
But there are barriers that make it difficult for the average Afghan to access cryptocurrency.
Although access to the Internet is growing, it remains low. According to DataReportal.com, there were 8.64 million internet users in Afghanistan as of January 2021.
Unreliable power supply is another major problem as power outages are commonplace. The country’s new Taliban rulers have been accused of not paying Central Asian electricity suppliers. And with the banking system paralyzed, many Afghans don’t have the means to pay their utility bills.
Education is also key when it comes to crypto. Mr. Hotak said he found reliable online communities on Telegram, WhatsApp and Facebook that give him trading tips and provide him with solid trading advice. But there is also a lot of misinformation about crypto that is easy to find online.
Despite the steep learning curve and multiple barriers to entry, using crypto in Afghanistan is viewed as an improvement on the status quo.
But cryptocurrencies are not a silver bullet, he said. Nigel Pont, a senior advisor at HesabPay. Lifting the restrictions placed on Afghanistan’s financial situation is crucial to alleviating growing poverty, he said.
“It’s the flaws of the traditional centralized fiat system that are starving Afghanistan.”
In February, US President Joe Biden signed an executive order to split $7 billion in frozen Afghan funds between aid to Afghanistan and US victims of 9/11, who in 2010 targeted the Taliban and al-Qaeda for their roles in the war attack sued.
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Although the government would reportedly transfer the other half of the frozen Afghan foreign reserves to humanitarian groups, the executive order does not specify how the money will be released and it remains unclear.
Most people in Afghanistan are still waiting for liquidity and unemployment benefits, and the United Nations has warned the country could approach a “near-universal” poverty rate of 97% by mid-2022. Millions remain in the country on the brink of starvation.
“We want US sanctions lifted so we can trade so we can see our families from abroad. We want the frozen funds to be given to families in Afghanistan,” Mr. Hotak said.
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