Can crypto help Afghans? Some think so

Kabul, Afghanistan–The first time Sulaiman Bin Shah used crypto was as a Fulbright scholar in California. He had been hearing about the decentralised coins for some time and wanted to try them out.

As a student of international trade and economic diplomacy he was fascinated by the idea of blockchain and decentralised banking, so in 2017 he bought some Ethereum and Litecoin. By the time he returned to Afghanistan the following year, he tried to explain cryptocurrency to his friends, but found them looking at him in wonderment.

“They all thought I was crazy, buying invisible coins.”

Bin Shah, who would go on to be a deputy at Afghanistan’s Ministry of Commerce and Industry in late 2021, said he had to start at the beginning, explaining what a ledger was and how it could be handled without a brick-and-mortar bank.

“I had to explain what it meant for everyone on the system to have access to these currencies without needing a centralised bank or financial institutions. They all just laughed at me,” he told Al Jazeera.

As cryptocurrencies started to gain international attention, more Afghans became fascinated with them and small groups of people found ways to begin trading in them, especially as at least one crypto commodity exchange had been started in Kabul by 2019. But it did not really take off until last year when the Taliban takeover of the country shut Afghanistan out of the traditional global economy, forcing more than 30 million Afghans to come up with new ways to access cash for their daily expenses.

Some have turned to the age-old practice of hawala, a method of moving money across borders that dates back centuries in South Asia and the Middle East. But because hawala relies heavily on an honour system, it has faced scrutiny for its lack of transparency and proper paper trails.

Others await the arrival of assistance and remittances from relatives abroad, but Afghans outside the country say over the last nine months they have faced many hurdles trying to send money through services like Western Union and MoneyGram including a lack of clarity on how to send money, how much can be sent and when it can be sent.

Power of crypto

One possible solution that is being touted repeatedly in recent months is cryptocurrency with enthusiasts saying it is the only viable solution to the cash crunch that they say was created by the former Western-backed government’s reliance on old and outdated economic models. As in so many other parts of the globe, it is mainly social media-savvy youth in their 20s and 30s who are pushing for more widespread adoption of crypto in their cash-strapped country.

“If we could have introduced people to crypto earlier, then the banking system could have been saved,” says Sayed Mansoor, one of the founders of the Falcon Investing Company, which trades crypto and runs a crypto-to-cash exchange while also offering training courses to anyone interested.

He believes that conventional banking systems are too beholden to long, time-consuming processes. To him, the power of crypto is in its speed, “When people see that transfers happen in under a minute, that automatically builds their trust.”

Another attractive factor of crypto exchanges is low fees compared with the hawala system. Hawala transfers generally charge 4.5 percent per transaction, but there are crypto offices in one of Kabul’s new shopping complexes and small shops in the west of the city that will transfer your money without charge.

One Afghan businessman who travels frequently between Turkey and Afghanistan said he transferred money between the two nations because of the low, or no, fees and because some exchangers would even offer three percent extra for converting crypto to cash.

Though it accounts for only a small portion of their business, the team at Falcon says that the speed of turning cryptocurrencies bought on the popular trading app Binance into cash is the best way they can convince other Afghans to see the coins as a viable way of trading and investing.

“It’s the first step, once they see how easy it is to get cash, then they start asking more questions,” said Mansoor.

To win over critics and fence-sitters, Falcon has started running special classes that cover the basics of buying, selling and using cryptocurrencies. The courses cost $100 and run several weeks, with the aim of turning attendees into crypto evangelists.

Nasratullah Salehi, a co-founder of Falcon, says the courses are essential to their vision to bring crypto to all of Afghanistan. “We want to increase our own team and find enthusiastic people who can educate others” and eventually help people across the nation’s 34 provinces to invest.

Challenges ahead

But it is a lofty goal. Formalised banking in Afghanistan has always had a low adoption rate, with Afghans preferring to keep cash at home or relying on the traditional hawala system. The 2010 collapse of Kabul Bank, then the nation’s largest private bank, required an internationally funded bailout that amounted to six percent of Afghanistan’s gross domestic product (GDP) at the time. That scandal greatly shook the people’s trust in official banking structures.

Last August, as the Taliban rapidly advanced towards Kabul, ATMs began to shut down and thousands of nervous Afghans lined up outside banks in the capital each day in a mad dash to empty their accounts. By the morning of August 16, a day after former President Ashraf Ghani fled and the Taliban walked into Kabul, banks across the country had shut down in fear of large-scale runs. By the time they reopened, more than a week later, there were strict limits on withdrawals. Those limits remain in place to this day.

Sceptics say that if Afghans had a hard time adopting traditional financial institutions, getting them to embrace digital currencies will be especially difficult and time-consuming.

Hassib Habibi, Deputy Director of Economic Cooperation at the Afghan Ministry of Foreign Affairs, says Afghans should not rush to turn towards new, untested systems.

“If the most advanced societies haven’t fully accepted it yet, how can a developing nation like Afghanistan suddenly turn to crypto?” Habibi told Al Jazeera. Though he admits he still has a lot to learn about crypto, Habibi says that at the moment, the better approach would be to encourage international donors and foreign investors to bring their money and businesses to Afghanistan.

“In all of our meetings with investors outside the country, our message is the same, ‘Come to Afghanistan, invest here and we will make sure you are protected and encouraged,’” Habibi said.

Sabir Momand, a spokesman at Da Afghanistan Bank, went further, telling Al Jazeera that the nation’s central bank does not yet recognise crypto as a valid, official currency.

The businessman who travels between Afghanistan and Turkey says there is a very specific reason why so many other nations have been slow to adopt crypto.

“The only reason that cryptocurrencies haven’t been adopted by the West is because of its trustless system. Governments are constantly looking for ways to tax citizens on their realised and unrealised gains on their investments and crypto transactions are nearly impossible to trace.”

But he says Afghanistan is at an advantage, because the nation does not have capital gains taxes or properly implemented sales and income taxes, “so we would have no problem implementing some type of central bank digital currencies. It would even allow Taliban to avoid economic sanctions and would put relief on the economy.”

The Falcon team acknowledges the Islamic emirate’s hesitancy towards crypto, but says that such reluctance is the result of a lack of information. “When we first went to the Central Bank, they didn’t know what crypto even was, so we realised we have to create a thorough, detailed proposal that starts from zero,” said Salehi.

Mansoor says members of the Taliban have sat in on their classes.

“They were part of the Ministry of Defence and they sat in on our courses, taking notes and asking questions until they were sent off to Nimroz,” a province in the southwest of the country. Both he and Salehi say that other members of the Taliban have expressed interest and asked them questions about crypto.

Limitations of paper currency

One point they hope to impress upon the people and the government is the limitations of paper currency. The afghani itself is printed in Europe and the last shipment came months before the Taliban’s August 15 arrival in Kabul, which means the same notes have been circulating in the country for nearly a year. In November, as the afghani continued to depreciate in value and the government’s stock of foreign currency dwindled, the Taliban ordered all Afghans to deal solely in afghanis. Salehi says both of these issues could have been avoided if more people had embraced crypto from the start.

“Afghanis tear and rip so easily and if you hand over a dollar or a euro with even a slip rip or tear, a currency exchanger will refuse to take it,” said Salehi.

The Falcon team wants to show how easy it is to spend digital currencies, especially at a time when high-quality notes are so hard to find. They recently partnered with a restaurant located in the same multi-storey apartment building as their own office to be Afghanistan’s first establishment to accept crypto in exchange for physical goods.

Despite the young men’s enthusiasm, financial experts suggest caution at a time when the Afghan economy is still reeling from the US Federal Reserve seizing billions of assets belonging to the Afghan central bank and international donors cutting back aid after the Taliban takeover.

Richard Coffin, host of The Plain Bagel, a YouTube channel focusing on personal finance, investment and global economics with more than 500,000 subscribers, says Afghanistan seems like a perfect example for crypto-enthusiasts, but that any support for its adoption could lead Afghans “cycling through different risks”.

Coffin says the biggest risk for Afghans buying into crypto is the speculative nature of its value. He fears that if Afghans were to switch over to crypto for their daily expenses, they would be “adding investment risk to their daily day-to-day expenses”.

Basically, Coffin worries that in a volatile economy like Afghanistan’s relying on a currency that has no other backing or specific intrinsic value could leave millions of people in one of the world’s poorest nations subject to extremely high risk and little, if any, regulation.

But the Falcon team, whose office features posters of Elon Musk, Jeff Bezos and Mark Zuckerberg, say Afghanistan must embrace what they see as the future. Their 15-person team – which is now teaching the Afghan public about Metaverse and the use of NFTs – and other crypto enthusiasts are an example of just how much urban youth in the country have embraced the internet and digital life, they say.

“We want to take a big step for Afghanistan and move it in the direction of other developed nations,” said Mansoor.

A continued reliance on an old-school banking system will keep the Afghan economy hobbling on and in constant need of foreign aid, Falcon says. “There are young, educated people in this country who have become digital natives, it’s time the Afghan people listen to them and look forward, rather than backward,” said Mansoor.