Cryptocurrency

Digital currency to the rescue – The Express Tribune


PUBLISHED
July 03, 2022


KARACHI:

Crypto fans rave about the benefits of the online currency, which provides an almost real-time synopsis of peer-to-peer trade around the world without disclosing the location or other details about the trader. This type of record of financial transaction, which gives the previously unheard-of ability to observe contact between anonymous online users is revolutionary for many.

People around the world have turned to digital currency for their transactions. In Libya, Syria, Afghanistan, Venezuela, Zimbabwe and Palestine, internet searches for bitcoin, Ethereum, and dogecoin have risen. The prevalence of this type of transaction is even beginning to overshadow normal curiosity in capital markets and other traditional forms of investment.

According to an analysis conducted by TradingView, a charting platform for trading markets, nations that top the charts in online searches for digital money are also those that score poorly on the Human Freedom Index, are politically volatile or war torn. Online searches for crypto currencies made up 42.2 percent of the total in Libya, 41.9 percent in Ukraine, and 38.7 percent in Palestine, placing them all in the top five for countries searching for digital currencies, while Syria came in at 36.9 percent, placing it in tenth place.

These results hint that developing countries are disproportionately more interested in digital resources than their developed neighbours.

Digital currencies in unstable countries

Digital currencies are thriving in crisis zones, including Palestine, Afghanistan, and Ukraine, where people are looking for alternatives to traditional banking because of their unstable conditions. In these environments, digital currencies have become a way for people to bypass the issues of currency devaluation, sanctions and other economic problems that tend to be especially prevalent in unstable countries.

In Afghanistan where the economy is flailing and most people don’t have bank accounts, crypto currency has also become a more efficient way to move funds. There, organisations like Digital Citizen Fund, a nonprofit focused on teaching computer basics to women and girls, are even paying their staff in bitcoin.

This organisation and others are pushing to teach crypto-use more aggressively so that Afghans can retain access to their money, even as their national currency loses its value. “The power of crypto is bigger – especially for women and those who don’t have bank accounts, it is very beneficial and so empowering,” Forough Mahboob, the founder at Digital Citizen Fund said.

“More and more Afghans are using stablecoins as a way to send and receive money,” Sanzar Kakar, founder of HesabPay mobile app said in an interview with Reuters. “There have been almost no remittances through international bank payments since August 2021, when the United States imposed new restrictions.”

In Ukraine, officials say millions of dollars in crypto have flowed into the country in support of Ukraine’s army and other activist groups. According to a press release from March from the country’s deputy minister of digital transformation, $100 million worth of crypto had been sent to support Ukrainians over the past several weeks.

The minister added that the Ukrainian government was also soliciting donations in the form of digital currency and had raised at least $54 million as of March 11. According to a website developed by the government to organize crypto currency-based fundraising efforts, Ukraine is certainly accepting several crypto currencies to aid in its conflict with Russia, notably bitcoin and the meme-inspired dogecoin.

People living in Syria and Gaza have also turned to digital currency to avoid high costs of business with people in other countries. Due to restrictions from surrounding nations, doing business with Istanbul currently costs 10% more for people in Syria. Digital cash, which has reduced transaction costs to 2 percent, was discovered as an alternative by citizens and traders.

To send or receive crypto currency from overseas and exchange it into domestic currency, brokers in Gaza incur a 1 percent to 2 percent fee, making the transaction simpler and more affordable than other methods. El Salvador and the Central African Republic also officially recognize bitcoin as valid currency, hoping that digital assets can benefit their economically vulnerable countries.

Crypto currency empowering Afghan women

The global adoption of crypto currencies is accelerating. Even as large institutional investors have driven bitcoin to greater heights this year, it is also being grasped by those without exposure to the traditional banking system, those in conflict zones, and those in countries with poor governance. Since the fall of Kabul, over 600,000 people have fled the Taliban regime, leaving them without access to bank accounts.

According to the World Food Programme, with international assistance reprimanded, a large bulk (98 percent) of Afghans do not have enough to eat. According to World Bank indicators, Afghanistan’s average annual income has fallen down drastically after Taliban takeover to US$500. According to UNICEF, 3.2 million children are malnourished, and over one million are at risk of dying from starvation, and yet there’s no money in hands.

Though, there are people who are actually empowering Afghans and Afghan women for the financial liberty. Sanzar Kakar, an Afghan American raised in Seattle launched HesabPay in 2019 which help Afghans transfer money using crypto.

On the other hand, organisations like Digital Citizen Fund is dedicated to providing girls and women in Afghanistan with opportunities for education and tech with an aim to provide Afghan women with self-sufficiency. Through the non-profit framework, they taught thousands of young women computer basics, they not only taught the girls how to use digital currency, but they also paid their staff in Bitcoin. One-third of the 16,000 girls who managed to learn went on to create crypto currency digital wallet and receive a payment.

“I am thinking now that why didn’t we teach about crypto more aggressively, so more Afghans could have crypto wallets and be able to access their money now,” said Forough Mahboob, founder at Digital Citizen Fund. “The power of crypto is bigger – especially for women and those who don’t have bank accounts, it is very beneficial and so empowering.”

The cultural – financial obstacles that women face on a daily basis in poor economies are dispiriting. Even though women’s rights in Afghanistan have progressed significantly since the end of Taliban rule in 2001, they still fall far short of the universal standard.

Global use of digital currencies

The global adoption of crypto currencies is accelerating. Large institutional investors have driven bitcoin to greater heights this year but people without exposure to traditional banking systems, including those in conflict zones and countries with poor governance, digital currency is also catching on.

But as digital currency gets more widely used, it is also being misused and abused, not just in warzones, but in the developed world, too. Last spring, hackers infringed upon a significant U.S. oil pipeline and started demanding more than $4 million in Bitcoin as ransom. Jerome Powell, the chairman of the U.S. Federal Reserve, warned about the unpredictable nature of crypto currencies that may convey unintended consequences for users in war-torn countries even as their market value grew to almost $2 trillion.

In Iran, the popularity of digital currency has added a new dimension to the potential integration of crypto currency into conventional warfare. In late 2018, Iran, Russia and Armenia signed a collaborative agreement to establish a virtual rial, the currency of Iran, after concluding a preliminary prototype for the product. To demonstrate its commitment to establishing the digital rial, Iran’s reserve bank even published an early copy of their projected crypto currency regulating initiatives in 2019.

Some worry the state-backed crypto assets could be used by Iran for nefarious and unlawful activity. The establishment of a private block chain network by the Iranian government would permit currency usage outside of any genuinely traceable network as usage rates and investments in private crypto currencies expand in Iran because of the rial’s erratic inflation rates. This might give Iran access to outlawed defense expertise and heavy weaponry.

It may also help the county avoid American-imposed trade embargoes. By incorporating crypto currency nationally, Iran may be able to conduct global trade without relying on the conventional banking system. This is one example of how governments committed to developing state-backed virtual currencies may have an impact on global security. The deposed administration in Myanmar has accepted Tether as legal tender. They are attempting to raise money for their efforts to depose the army, which assumed control last year.

Financial crime in conflict zones

Emerging technologies are thought to improve the ability of states and quasi entities to engage with one another, making them more powerful and important players on the international arena. Emerging technologies in this context allow some actors to control others in zero-sum conflicts that always have victors and victims.

However, the use of de-centralised exchange platforms also increases the hazards of financial crime in conflict zones, which are already frequently involved in arms trafficking, corruption, and terrorism financing. Both illegal players and regular users prefer digital currencies for anonymous transactions. With these types of dealings, the owner and origin of the cash are hidden; Associates or middlemen dealers buy and keep crypto currency on behalf of a user in a precarious situation.

However, making cash payments or using swaps without indemnification services puts users at greater risk of fraud and theft, making it dangerous for them to use these networks. Regimes in warzones and unstable nations don’t give the development of regulatory networks for digital currency much thought. As a result, the responsibility of monitoring and addressing risks falls on financial institutions. These institutions and other responsible actors must keep an eye on political and security trends to anticipate demand peaks and prepare for them.

For users of crypto currency, risks extend beyond hacking and include the manipulation of cryptocurrency prices and other exploitation from employees and insiders. Manipulative practices can lead to artificially inflated prices for digital currencies

Conflict crisis leading to tech-innovation

Although digital currencies pose potential risks to users and states, they also present an opportunity for innovation. People in unstable nations have started using digital currencies primarily out of practical necessity, bolstering the idea that crypto currencies can be used to problem solve.

Organisations like the Bill & Melinda Gates Foundation are studying blockchain solutions to create new financial frameworks in conflict hit countries. This organisation and others recognise the crucial role digital currencies may play in providing relative safe and legitimate substitutes for repatriation payments in weak states like Somalia, where a pervasive danger of anti-money-laundering persists.

The emergence of shady remittance networks in Somalia during the country’s protracted civil war in the 1990s is an example of how new technology is being strategically used to address social issues. At the time, Somalia had one of the most cutting-edge telecommunications networks in all of Africa, illustrating how conflict can spur technological advancements and competition.

Peer-to-peer and decentralised systems work well in turbulent settings since they don’t depend on centralized banking systems. Similarly, for people in sanctioned nations who are unable to transfer money overseas in any other way, crypto currency is occasionally the only option. Iran is a test case study in this scenario. Another example is conflict torn Lebanon.

Banks implemented unofficial restrictions on capital and prohibited wire transactions during the 2019 Lebanese economic meltdown, effectively freezing their customers’ assets. Foreign currency transactions were made legal by new regulations that went into effect in May 2020, although they were only allowed for “essential affairs” and were fixed at $50,000 per year, or $50 to a few hundred dollars per month.

To retain control and avoid losing it to constraints put by banks or the government, an increasing number of Lebanese citizens are choosing to keep their money in crypto currencies. Despite extreme hyperinflation, which peaked in Venezuela at 10,000% in 2019, both Iran and Venezuela have seen rising crypto currency usage. Affluent people in these nations have traditionally used the share market and tangible assets like gold and real estate to secure their riches, but crypto currencies provide a more accessible option for those with lesser investment sums.

A move away from hard commodities was expected to be attractive in regions of the world where it was harder to locate foreign currency, carry large amounts of cash, or access facilities. Places where banks frequently imposed lending limitations were also seen as potential markets for alternative currencies.

This trend has come to fruition in countries across the world that are now trying to balance the risks and rewards of the new frontier of digital transactions.

Ali Asad Sabir is a freelance writer. All information and facts provided are the sole responsibility of the writer.



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