- For many Afghans, this week has laid bare the worst-case scenario for a country running on legacy financial rails: A nationwide cash shortage, closed borders, a plunging currency, and rapidly rising prices of basic goods.
- In some ways, it's a perfect test case for the usefulness of bitcoin and other cryptocurrencies. CNBC spoke with several Afghans who are using crypto to learn how they got into it, how it's helping them, and barriers to further adoption.
Farhan Hotak isn't your typical 22 year-old Afghan.
In the last week, he helped his family of ten flee the province of Zabul in southern Afghanistan and travel 97 miles to a city on the Pakistani border. But unlike others choosing to leave the country, once his relatives were in safe hands, Hotak then turned around and came back so that he could protect his family home – and vlog to his thousands of Instagram followers about the evolving situation on the ground in Afghanistan.
He has also been keeping a very close eye on his crypto portfolio on Binance, as the local currency touches record lows and nationwide bank closures make it next to impossible to withdraw cash.
"In Afghanistan, we don't have platforms like PayPal, Venmo, or Zelle, so I have to depend on other things," said Hotak.
Afghanistan still mostly operates as a cash economy, so money in Hotak's crypto wallet won't help him put dinner on his table tonight, but it does give him peace of mind that some of his wealth is safeguarded against economic instability at home.
It also offers bigger promises down the road: Access to the global economy from inside Afghanistan, certain protections against spiraling inflation, and crucially, the opportunity to make a bet on himself and a future he didn't think was possible before learning about bitcoin.
"I have very, very, very limited resources to do anything. I'm interested in the crypto world, because I have earned a lot, and I see a lot of potential in myself that I can go further," he said.
Run on the banks
For many Afghans, this week has laid bare the worst-case scenario for a country running on legacy financial rails: A nationwide cash shortage, closed borders, a plunging currency, and rapidly rising prices of basic goods.
Many banks were forced to shutter their doors after running out of cash this week. Photos featuring hundreds of Kabul residents crowding outside branches in a futile effort to draw money from their accounts went viral.
"There's no bank I can go to right now, no ATM," said Ali Latifi, a journalist born and based in Kabul. "I live above two banks and three ATM machines, but they've been off since Thursday," said Latifi, referring to the Thursday before the palace ouster.
Without an authority helming the Central Bank, it appears that printing cash to cover the shortfall isn't an option, at least in the short-term.
The Western Union has suspended all services and even the centuries-old "hawala" system – which facilitates cross-border transactions via a sophisticated network of money exchangers and personal contacts – for now, remains closed.
Sangar Paykhar, a Kabul native currently living in the Netherlands, has been in constant touch with relatives there in recent weeks. He said that many who live paycheck to paycheck were, at first, borrowing money from others to get by, but now, those able to lend out cash have started conserving their funds.
"They've realized the regime has collapsed" and that those they are lending to "might not have a job tomorrow," said Paykhar.
A few days before the Taliban entered Kabul, Musa Ramin was among the people who queued outside a bank in a fruitless attempt to withdraw cash. But unlike other Afghans in line with him that day, months earlier, he had invested a portion of his net worth into crypto. Ramin had been burned before by a rapidly depreciating currency, and decentralized digital money had proven to be a trusted safeguard.
In 2020, on what was meant to be a brief layover on a trip from London to Kabul, Ramin got stuck in Turkey. A one-week, mandatory Covid quarantine ballooned into six months.
"I converted all my money to the lira," he said. After the Turkish currency began to spiral, Ramin said his capital was cut in half, and he was forced to conserve it. "That is when I discovered bitcoin."
With all flights cancelled and no other options for departure, Ramin realized he needed to find alternative ways to support himself while stranded in Turkey during the pandemic-related shutdown. That's when he started trading crypto.
"At first, I lost a lot of money," he said. But he's since gotten the swing of managing his digital assets, thanks to Twitter and tutorials on YouTube.
Even after returning to Kabul, the 27 year-old says he put all his focus into trading crypto. 80% of his crypto capital is in spot exposure, primarily in major coins, like bitcoin, ethereum, and binance coin. The other 20% he uses to trade futures.
"I was making more money in crypto in a month than in construction in a year," said Ramin, though he did acknowledge the risk that's involved. "It's easy making money in crypto but keeping that wealth is the difficult part."
Despite that volatility, Ramin still sees crypto as the safest place to park his cash. "If a government isn't formed quickly, we might see a Venezuela-type situation here," Ramin told CNBC. He feels virtual tokens are his safest hedge against political uncertainty and plans to increase his exposure to digital currencies in the coming year to as much as 40% of his total net worth.
Ramin isn't alone in his thinking. Google trends data shows that web searches in Afghanistan for "bitcoin" and "crypto" rose sharply in July just before the coup in Kabul. That said, because this tool is a measure of interest, the spike could be referring to 10 searches or it could be 100,000.
But in a country that has long relied on physical cash for virtually all transactions, not many people have the option to let their savings sit in a bank account, let alone a digital wallet.
Just take Hotak. He lives in a remote part of Afghanistan where there are no ATMs or bank branches nearby. That means he has to keep a lot of physical cash on hand, in order to cover daily expenses. "Afghanistan is an unexpected country, and you have to be ready for anything," he said.
While Hotak thinks that crypto is his future, for now, the bulk of his income comes from day labor jobs, like shoveling, brick work, digging wells, and running a tailor shop that makes clothes.
"Zabul is not a very developed city. It's a village, so that's how I earn," he said.
Signs of a growing crypto economy
It's hard to get insight into crypto adoption in Afghanistan.
Beyond the fact that measuring cryptocurrency adoption at the grassroots level isn't easy, people actively go out of their way to hide who they are.
Some Afghans, for example, will conceal their IP address by using a virtual private network, or VPN, in order to mask their geographic digital footprint.
And unlike many crypto boosters – who tend to be vocal and community-driven – digital currency supporters inside Afghanistan often don't want others to know they exist.
"The crypto community in Afghanistan is very small," said Hotak. "They actually don't want to meet each other." He thinks that could change if the political situation normalizes, but "for now, everyone just wants to stay hidden until things are nice."
However, new research from blockchain data firm Chainalysis is offering fresh optics on the country's apparently burgeoning peer-to-peer (P2P) crypto network, which is increasingly the most telling metric of adoption in Afghanistan. Hotak, as well as his friends, use Binance's P2P exchange, which allows them to buy and sell their coins directly with other users on the platform.
Chainalysis' 2021 Global Crypto Adoption Index gives Afghanistan a rank of 20 out of the 154 countries it evaluated in terms of overall crypto adoption. And when you isolate for its P2P exchange trade volume, Afghanistan jumps up to seventh place. That's a big move in just 12 months: Last year, Chainalysis considered Afghanistan's crypto presence to be so minimal as to entirely exclude it from its 2020 ranking.
"Afghanistan on top makes sense from a capital controls point of view, given it's hard to move money in and out," explained Boaz Sobrado, a London-based fintech data analyst.
And some experts tell CNBC that Chainalysis could actually be underestimating its overall adoption.
"Unlike many other countries, sanctioned nations don't have good and clear data on P2P markets," explained Sobrado. He says that is partly to do with the fact that it is harder to track those transactions.
There are other anecdotal signs of adoption across the country.
Nearly a decade ago, sisters and Afghan entrepreneurs Elaha and Roya – both of whom had a focus on computer science at Herat University – founded the Digital Citizen Fund, an NGO that helps women and girls in developing countries gain access to technology. The organization has 11 women-only IT centers in Herat and another two in Kabul, where they teach 16,000 females everything from essential computer skills to blockchain technology.
Before classes were suspended earlier this week, creating a crypto wallet was also part of the curriculum. Elaha Mahboob tells CNBC that some students have chosen to secure their money in crypto accounts and a few have specifically started investing in bitcoin and ethereum in order to achieve their long-term financial goals.
"This is especially important as they don't have to worry about not having access to their money, because major banks in Afghanistan have closed," Mahboob said.
A few Digital Citizen Fund participants have left the country and used the crypto accounts they made in class as a way to transfer their money out.
Afghanistan's exposure to the cryptosphere was also taking place inside the presidential palace. Blockchain company Fantom told CNBC it had been working in tandem with the previous government.
One such project with the Ministry of Health involved piloting blockchain technology to track counterfeit pharmaceuticals. Fantom says the pilot "concluded successfully," and they had been preparing for national rollout before the Taliban took over.
Then there's Sweden-based Bitrefill, an online marketplace that helps customers live on cryptocurrency by exchanging digital coins like bitcoin or dogecoin for gift cards with partner merchants. In Afghanistan, the card offerings include multiple mobile phone service providers, games such as Fortnite and Minecraft, Hotels.com, and Flightgift, which can be redeemed for flights with 300 international airlines.
While the company wouldn't share sales numbers on the record with CNBC, Bitrefill does have the endorsement of Janey Gak, who uses it to top up her phone. Her Twitter account has become a must-follow for those who want to understand the situation on the ground through her eyes, but she's also evangelizing the power of bitcoin to transform the country.
"I'm just an ordinary person. I'm not anyone special," she said. "I am just someone who discovered bitcoin a couple of years ago."
In 2018, Gak — who goes by the name "Bibi Janey" — started a Facebook page as a hobby to see what Afghans thought of bitcoin. "I remember getting a lot of comments and questions like, 'Can you explain more?'" she said. "People would be fascinated by it, but they would be so confused." She also got lots of questions about where to buy bitcoin.
Since entering this world, she has learned how to code and reads as much as she can about bitcoin. "I don't trade, I don't do any of that," she said. "I just make some money here and there and save it in bitcoin."
Through her research, she's come to the conclusion that in order for Afghanistan to be a truly sovereign state, it must never borrow money – and adopt a bitcoin standard. To foment wider adoption, Gak commissions articles to be translated to local languages.
"It's not much, but it's a start," she told CNBC.
DIY crypto rails
The on-ramp to participating in the crypto economy in Afghanistan is complicated and there are still multiple barriers to entry.
Access to the internet, while growing, remains low. There were 8.64 million internet users in Afghanistan in January 2021, according to DataReportal.com and internet penetration stood at 22%.
Unreliable electricity poses another major issue, as power outages are common. "Power goes out once every day for a couple of hours," said Ramin, though he noted that it happens in some parts of Kabul more often than others.
When CNBC first spoke to Hotak, he was seated near one of the land-crossings into Pakistan, tapping into a WiFi network across the border. "We don't have proper internet on the Afghanistan side," he explained.
Hotak also uses solar power to charge his phone, given the country's long-standing issue with electricity outages.
Electricity and a stable internet connection are two essential rails for widespread crypto adoption. Also critical is having access to some form of online banking or a credit card that is recognized internationally – which again, poses a big problem for many Afghans. Eighty-five percent of the country is unbanked, according to one U.N. estimate, meaning they do not have a bank account.
So people wishing to deal in crypto have to get creative.
Hotak and some of his contacts enlist the help of family and friends in neighboring Pakistan or across the Gulf of Oman in the United Arab Emirates, where they have easier access to global markets.
"It's very easy in Pakistan," he said. "Most people have relatives in Dubai, who buy crypto for them using their credit cards."
When the person then wants to liquidate their crypto stake, relatives will sell it for them and use the hawala system, an honor-based system of credit common in Asia and the Middle East, to transfer the funds across the border to Afghanistan. The strategy requires a great deal of trust. In the case of Hotak, his friend in Pakistan doubles as his crypto broker.
"He is a very, very close friend. He has his details on the account that I use, so we could say that it's his account, but I use it," Hotak said of the arrangement.
Trust is also key when it comes to judging the quality of trading tips. "There's a lot of scammers on YouTube and Twitter," warned Ramin. When he first started off, he would spend most of his money buying coins promoted by people looking for exit liquidity. "That's why I stopped trading small-cap coins."
Hotak, on the other hand, has found a reliable online community that offers him sound trading advice.
"There's a few groups on Telegram, WhatsApp, and there's even a Pakistani community on Facebook I follow that gives me the signals to sell. I follow them, and it's been good so far," said Hotak.
Brokers advertising crypto services on Facebook appear to be operating across the country. Hotak visited one in Herat in early 2020. He went to interview for a job there and says the two-story data center was packed with boys, mostly aged 20 to 25.
"They were all university people," he said. "They all had smartphones in their hands, and they were just scrolling down and down."
CNBC has not spoken with any of these brokerages directly, but Hotak says the site he visited in Herat is still going. Hotak also says that Herat is home to a bitcoin mining farm.
"They had these very big CPUs. Very advanced," he said. But Hotak tells CNBC he didn't get to see the entire operation. "I just got a little glimpse of it."
Blockchain analysts Lorne Lantz and Rieya Piscano say they looked at various data sources and found no sign of bitcoin or ethereum nodes running in Afghanistan, so it is unclear whether this miner in Herat has covered his online footprint, or whether he's cut off his rigs.
Even with all of these workarounds, the political turmoil of the last few weeks doesn't make it easy to find time to think about crypto.
"The reality is I cannot focus on crypto trading when the ongoing events in Afghanistan are this intense," said Hotak. "With no electricity and bad internet, crypto trading is near to impossible, so we just hold."
Path to mass adoption
On Aug. 15, an hour and a half before Ramin's flight bound for Turkey was due to take off, then-President Ghani arrived to the airport in Kabul. After that, Ramin says that all flights were halted and everyone was kicked out.
Ramin still has plans to leave, along with his family. But finding a flight is proving to be difficult. He's used his now dwindling supply of afghanis to purchase flights for ten members of his family. He's done this three times, and all three times, the flights were canceled. With travel agencies shut, he remains in a bit of a holding pattern on the ground in Kabul.
Ramin is one among many looking to leave the country. Every media outlet on the planet has been circulating the same photos of Afghans clinging to planes, fleeing the country with whatever possessions they can carry. For several, this has meant having to leave a lot behind.
Ramin estimates that around 5-10% of his net worth is in crypto, which makes it easier to plan an exit, knowing that there is some money in the bank to tide him over, especially since he doesn't know if he will ever see the money in his bank accounts in Kabul.
"If some type of government doesn't come to existence, then I could potentially see the majority of my wealth being wiped out," he said. For now, he and his family are just sitting tight, waiting to catch a flight out.
But many people are staying put, in part because they want to foment positive change at home.
"In these circumstances, one can fully appreciate the censorship-resistance property of blockchain-based assets. I believe this is the main driver of the fundamental value of bitcoin and other cryptos," said Andrea Barbon, Assistant Professor of Finance at the University of St. Gallen.
Gak, for example, thinks that using legacy financial rails like the hawala system might be one of the most effective ways to foster mass adoption. It is a vision she detailed in a prescient story she wrote for Hacker Noon in 2018.
She's also thinking about opening her own exchange shop in Kabul. "The idea is that anyone with bitcoin can exchange it for fiat and then use that to buy goods like always. Anyone who is unable to receive can have their family for example, send the bitcoin to me with a unique address that only the recipient would know just like hawala," she explained in a tweet.
Ramin has a similar plan to make crypto more accessible to Afghans. "I hope once I gain more knowledge in blockchain technology to create a team and develop an easily accessible trading platform which Afghans can use," he said.
There are promising trends on their side. The number of social media users in Afghanistan increased by 22% from 2020 to 2021, and 68.7% of the total population now has a mobile phone connection, according to DataReportal.com. It helps that more than 60% of the population is under 25 and hungry to be a part of the modern economy. Shakib Noori, previously the CEO of a mobile money company in Afghanistan, says this younger demographic also tends to be more tech savvy.
Ultimately, CNBC is told that grassroots adoption comes down to one Afghan teaching another about how cryptocurrencies like bitcoin work. Hotak has already mentored three students, and that's just the beginning.
"The Afghan people – they're very complicated. And it's very hard convincing them that digital currency exists," he said. "I have plans to teach people about cryptocurrency in the future...but for now, people are just laying low and waiting to see what happens next."