Russian-Linked Crypto Wallet Accused by U.S. Sanctions Watchdog of Processing $5M
Binance Under Investigation by U.S. Department of Justice for Violating Sanctions Related to Russia, According to Bloomberg
What the Taliban's repression means for the future of cryptocurrency in Afghanistan
After the Taliban gained power last August, Afghanistan was subject to international sanctions, which forced several foreign organizations and money transfer providers to halt their operations there. This opened the door for the widespread adoption of stablecoins and digital currencies, at the very least for remittances.
According to the regional news website ATN-News, the Taliban administration has lately outlawed cryptocurrency and detained 16 local currency exchangers in the city of Herat in the northwest over the past week.
The report claims that despite first being given a chance to adhere to government standards, the exchanges were finally forced to close down for good. The Afghan government has now requested that its citizens refrain from using digital assets and has cautioned them of the dangers involved.
However, according to persons with knowledge of the situation who asked to remain anonymous for security concerns, "no earlier notice or warnings were issued," according to Cointelegraph.
"Da Afghanistan Bank (the central bank) wrote in a letter that digital currency trading should be shut down because it has created numerous issues and is defrauding people. Sayed Shah Sa'adat, the head of the Herat police's counter-crime squad, told ATN-News, "We acted and detained all the exchangers participating in the transaction and shuttered their stores.
People with knowledge of the situation are of the opinion that the government's "stupid" move was unrelated to any crypto-related schemes. To trade, send, or receive assets, they continued, "we mostly used a wallet and the Binance cryptocurrency exchange. We currently lack access to regular financial institutions and services, and the Taliban have outlawed our last resort.
Afghanistan's central bank, which is dominated by the Taliban, outlawed online currency trading in the nation in June. According to a bank spokesman who talked to Bloomberg, "there is no direction in Islamic law to authorize it." The bank considers currency transactions as being both unlawful and fraudulent. According to Bloomberg, after the Taliban took back control of Afghanistan, the financial situation of the locals deteriorated as billions of dollars in foreign aid were cut off and their offshore assets were frozen due to US sanctions.
Why did the Taliban ban crypto?
The primary causes of the prohibition, according to the ATN-News report, are the volatile nature of cryptocurrencies and the outflow of assets like the U.S. dollar because cryptocurrency exchanges are not headquartered in Afghanistan. The fact that digital currencies are new and "the people are not familiar with them" is another factor mentioned in the paper.
Ghulam Mohammad Suhrabi, the leader of the fiat exchangers' organization, asserted that scams involving cryptocurrency existed. However, those with knowledge of the situation are unaware of any crypto-related fraud or criminality, and Suhrabi didn't offer any specific information.
Some people think that the decentralized nature of cryptocurrencies and the underlying blockchain technology is the only justification for the ban. According to a trader with more than six years of cryptocurrency experience, "They outlawed it because they cannot manage it.":
“The government wants to see, control and manipulate everything in the country. Crypto is volatile, I agree, but everyone who uses it must know that. We also have stablecoins like Tether, USD Coin and many more for the people who just want to send or receive remittances to/from other countries.”
According to additional sources cited by Cointelegraph, the Taliban has also said that using cryptocurrencies is like "gambling" and has referred to it as "Haram," which is prohibited by Islamic law. They have also said this to dealers and crypto-to-fiat converters. The government wants individuals to transfer money via local banks, but "the majority of the local monetary services are limited and do not allow us to withdraw all of our money at once," they continued.
One cryptocurrency user who receives funding through his German brother told Cointelegraph, "We can only get about 20,000 Afghanis (about $220) per week from the local banks, and one should sometimes wait in line for hours." The high transaction rates, which we are merely attempting to avoid, are additional issue in addition to all the challenges associated with withdrawing money from banks.
He continued by saying that using services like SWIFT, Western Union, MoneyGram, and the neighborhood Hawala system always comes with a ton of extra fees. The crypto user noted that the transaction rates occasionally go up to 20%.
Risk of crypto in Afghanistan
Many Afghans were searching for alternatives to borrowing money from their relatives and friends overseas after Afghanistan was slammed by a wave of sanctions that restricted its access to international banking and trade. The lack of availability or prohibitive costs of local money transfer services allowed for the emergence of cryptocurrencies.
Additionally, banks in Afghanistan do not allow well-known payment transfer platforms like PayPal and Venmo, which restricts the financial services that these institutions can offer. Additionally, opening a bank account is challenging due to the numerous conditions one must fulfill, such as submitting a house deed and working statement.
Locals claimed that they might get family gifts of cryptocurrency worth thousands of dollars without worrying about transaction costs or the difficulty of [digital] exchanges. It's so simple to use [crypto] wallets and apps like Binance that some people who cannot read or write may now transfer or receive bitcoins.
Google Trends data shows a greater than 100% increase in interest in the search keywords "Bitcoin," "crypto," and "cryptocurrency," particularly in the provinces of Herat, Kandahar, Kabul, Nangarhar, and Balkh.
In addition, Afghanistan was placed 20th out of 154 nations in "The 2021 Global Crypto Adoption Index" published in 2021 by Chainalysis. One person informed Cointelegraph that this is a sign that Afghans are open to using and investing in cryptocurrencies in their daily lives.
Online worker: "Since we don't have access to a service like PayPal, cryptocurrency is the only way I can get paid online." "I get paid in cryptocurrency, and this is how I feed my family of nine, but I'm really at my wits' end right now."
According to one source, the Taliban may be planning to employ blockchain technology to develop a central bank digital currency (CBDC). However, the majority of traders think that since cryptocurrencies already provide what users want, there is no need for a CBDC. There has not yet been any CBDC-related announcement from the Taliban.
At Consensus 2022, U.S. Deputy Secretary of the Treasury Wally Adeyemo said, "Just imagine what a frictionless, global digital payments system with appropriate controls for illicit finance could do for people in places like Afghanistan — if relatives abroad could send remittances easily, or if NGOs could pay their staff halfway around the world with the click of a smartphone."
Adeyemo emphasized the inadequacy of Afghan regional banks in delivering enough cash for "common people." He feels that, despite the fact that things in the nation are getting worse by the day, "it is vital that we balance both sides of this metaphorical digital coin, the risks and the opportunities."
