Inside Afghanistan’s cryptocurrency underground as the country plunges into turmoil

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.

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.

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.

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.”