The Legal Status Of Cryptocurrency In Afghanistan: Exploring The Unknown

The use of cryptocurrency in Afghanistan has surged since the Taliban takeover in August 2021, as Afghans seek ways to cope with a deepening financial crisis and circumvent US sanctions. Crypto is now seen as a lifeline for those who can access it, allowing them to receive money from abroad, protect their wealth against economic instability, and make purchases without relying on banks. However, there are still significant barriers to crypto adoption in Afghanistan, including limited internet access, unreliable electricity, and low literacy rates.

Crypto as a means of survival in Afghanistan

The Taliban takeover of Afghanistan has led to a surge in the use of cryptocurrencies as Afghans look for ways to cope with a deepening financial crisis. In 2021, Afghanistan went from being a country with almost non-existent crypto usage to ranking 20th out of 154 countries in terms of adoption. The crypto usage in the country has seen a sharp increase in the face of multiple fiat currency challenges.

The Need for Crypto in Afghanistan

The Taliban's takeover of Afghanistan prompted a financial crisis. The country's economy, already heavily reliant on foreign aid, faced severe disruptions with the US authorities seizing $7.1 billion in assets from the Afghan central bank and ending transfers in US dollars. This, along with the suspension of services by money transfer services like Western Union and Swift, left Afghans with limited access to their money and unable to conduct basic financial transactions.

How Crypto Helps

Cryptocurrencies have provided a financial lifeline for Afghans, allowing them to receive and send money internationally, bypassing the traditional banking system. Crypto offers a sense of security and protection against economic instability, especially with the local currency touching record lows. It also provides access to the global economy and offers some protection against spiralling inflation.

Challenges and Barriers

However, there are several challenges and barriers to the widespread adoption of crypto in Afghanistan. Access to the internet and reliable electricity is limited, and the country has high illiteracy rates. Additionally, there is a general lack of understanding about crypto, and the Taliban banned all forms of cryptocurrency in August 2022 on religious grounds.

The Way Forward

Despite the challenges, crypto offers a potential solution to Afghanistan's financial sector problems. Education and technological access are vital to its wider rollout. NGOs like Digital Citizen Fund and Code to Inspire are playing a crucial role in providing knowledge and tools to use crypto safely.

While crypto may not be a silver bullet, it has become an important means of survival for Afghans, offering a glimmer of hope in a country facing a dire humanitarian crisis.

Crypto's role in helping Afghans escape the country

Afghanistan's economy has been in a state of turmoil since the Taliban took control in August 2021. The country has been hit by a liquidity crisis, with banks closing and strict withdrawal limits imposed, causing long queues outside branches. The economy has also been affected by the US seizing billions of dollars of assets from the Afghan central bank, and the suspension of funding by international financial institutions.

In this context, cryptocurrencies have played an increasingly important role for Afghans, offering a way to protect their wealth against economic instability and providing access to the global economy. Crypto has also been a lifeline for those who have fled the country, allowing them to take their assets with them.

Afghans have turned to crypto to receive money from abroad, as other money transfer services like Western Union and Swift have stopped operating in the country. Crypto transfers have no fees, are instantaneous, and circumvent the need for banks or the Afghan government. Crypto has also allowed humanitarian organisations to bypass banks and deliver aid directly to those in need, avoiding the risk of funds being confiscated by the Taliban.

However, there are several barriers to crypto adoption in Afghanistan. These include limited access to the internet and electricity, as well as low literacy and digital literacy rates.

The use of crypto by NGOs to provide aid

The Taliban takeover of Afghanistan has led to a surge in the use of cryptocurrency as Afghans are left with limited options to cope with a deepening financial crisis. Money transfer services like Western Union and Swift stopped their operations in the country, leaving many Afghans without a source of income. The only way to receive money from other countries is by using crypto. Cryptocurrencies are also being used to avoid US sanctions and get paid from other countries.

NGOs looking to provide emergency aid to Afghanistan are turning to cryptocurrency to bypass banks and discreetly avoid the Taliban. Crypto transactions are transparent, private, instant, and cheaper to process. They can be transferred almost immediately while avoiding the barriers of the traditional financial system. Cryptocurrency also allows Afghans fleeing the Taliban to take their assets with them without the risk of confiscation.

• Fereshteh Forough, the founder and CEO of a coding academy for girls in Afghanistan called Code to Inspire, uses cryptocurrency to provide monthly emergency payments to help students afford food.
• Roya Mahboob, the CEO of Afghan Citadel Software Company, pays her employees in digital currencies.
• Sanzar Kakar, an Afghan American, created an app called HesabPay, which helps Afghans transfer money using crypto.
• The Digital Citizen Fund, an NGO that teaches computer programming and financial literacy to young Afghan women, started sending money to Afghan families via crypto to help them provide food and housing.
• The Pineapple Fund, an anonymous donor, pledged to donate $86 million worth of Bitcoin to various charities.
• The Binance Charity Foundation claims to have donated about $25 million, plus another $10 million to a humanitarian relief fund for the war in Ukraine.

The potential for the Taliban to adopt crypto as part of a national economic policy

The Taliban's takeover of Afghanistan has resulted in a financial crisis, with Western governments, banks, and money service businesses cutting off access to other forms of finance. This has fueled a surge in the use of cryptocurrency among Afghans, who see it as a safe place for their funds and a way to circumvent US sanctions.

If the Taliban were to adopt cryptocurrency as part of a national economic policy, it could aid their efforts to circumvent sanctions. However, there are several challenges and risks associated with this potential adoption.

Firstly, the Taliban have not yet announced any regulations or bans regarding digital currencies. There is a possibility that they could ban crypto if it is deemed "haram" (forbidden) by Islamic scholars. On the other hand, if crypto is considered “halal” (permissible), it could be widely adopted. Some Taliban supporters have already suggested that the Taliban leadership learn how to exchange cryptocurrencies to avoid the Western financial system.

Secondly, the low literacy rate and limited access to the internet and smartphones in Afghanistan pose barriers to the mass adoption of crypto. Additionally, the frequent power outages in the country could hinder the use of crypto, which relies on a stable internet connection.

Thirdly, there are risks associated with the volatility of cryptocurrency values. Even stablecoins, which are pegged to the US dollar, have experienced fluctuations that have led to losses for some Afghans.

Finally, while crypto provides a level of anonymity and security for users, there are concerns that it could enable nefarious activity and be subject to Taliban regulation if widely adopted.

In conclusion, while the potential for the Taliban to adopt crypto as part of a national economic policy exists, there are several challenges and risks that need to be addressed. The impact of such a policy on the Afghan people and the international community remains to be seen.

The challenges of crypto adoption in Afghanistan

Afghanistan has seen a surge in the use of cryptocurrency as its people grapple with a deepening financial crisis following the Taliban takeover. While crypto offers a glimmer of hope for an ailing economy, there are several challenges to its adoption.

One of the primary challenges to crypto adoption in Afghanistan is the lack of infrastructure. The country relies heavily on hard cash, and its citizens have limited access to online banking or internationally recognised credit cards. Additionally, unreliable electricity and frequent power outages make it difficult for people to stay connected to the internet and access their digital wallets.

Another significant barrier is the low literacy rate in the country. Only 43% of Afghanistan's population is literate, and even fewer have regular access to the internet. This makes it difficult for people to learn about and navigate the complex world of cryptocurrency.

The political and economic instability in Afghanistan also poses a challenge to crypto adoption. The country is facing severe economic sanctions, and its banking system is paralysed. This has resulted in a liquidity crisis, with commercial banks unable to lend money and retail customers unable to withdraw their savings. The lack of a stable national currency further complicates the use of crypto, as people need to constantly convert between fiat currencies and digital assets.

Cultural factors also play a role in the slow adoption of crypto. Afghanistan is a largely cash-based society, and many people are hesitant to embrace new technologies, especially when it comes to their finances. The country also has a history of government corruption, which makes it difficult for people to trust digital assets that are not backed by a central authority.

Lastly, the regulatory environment for crypto in Afghanistan is uncertain. The Taliban have not yet announced any regulations or bans on digital currencies. If a top Islamic scholar declares crypto to be "haram" (forbidden), the Taliban could ban it without hesitation. On the other hand, if crypto is deemed halal (permissible), it could open the door to wider adoption.

Despite these challenges, there are signs that crypto is gaining traction in Afghanistan. Some Afghans are turning to crypto to circumvent US sanctions and receive remittances from abroad. Local crypto dealers and traders have reported a significant increase in the number of people using cryptocurrencies. Additionally, NGOs and humanitarian organisations are exploring the use of crypto to provide aid directly to those in need, bypassing banks and the Taliban.

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