What Bitcoin Reveals About State Failure in the Middle East

Cryptocurrency's rise in Afghanistan, Iraq, and Lebanon reflects institutional failure, not technological fascination. When banks and states can't be trusted, people turn to systems that simply work.

Bitcoin did not gain traction in parts of the Middle East and Afghanistan because people became fascinated with ideology or digital finance. It gained traction because the state failed to provide something far more basic: reliable access to money.

According to the World Bank, approximately 1.4 billion adults worldwide remain unbanked—relying instead on cash and alternative financial services for transactions. A disproportionate share of them live in unstable and conflict-affected regions, including much of the Middle East and Central Asia. This is often framed as a development gap or a technology problem. It is neither. Financial exclusion in the region is overwhelmingly institutional in nature. People are not offline. They are locked out.

Take Afghanistan. World Bank data from 2021 shows that only about 10 percent of adults had access to a bank or mobile money account even before the Taliban takeover. For women, access was even lower. After 2021, the banking system effectively ceased to function for large parts of the population, especially women, who faced formal and informal restrictions on travel, documentation, and financial autonomy. Cash became the default not because it was trusted, but because nothing else was viable.

This is the context in which Bitcoin first emerged, not as an investment thesis but as a workaround. When Afghan women working as coders and writers were paid in Bitcoin as early as 2013, the motivation was brutally simple. International transfers were slow, expensive, and unreliable. Informal systems were male-dominated and frequently intercepted by relatives. Holding cash exposed women to theft and coercion. Bitcoin, however, enabled money to move directly to the person performing the work without requiring permission from a bank, a family member, or the state.

The same institutional failure repeats itself across much of the region. Iraq is not a country without banks. It is a country without trust. Data indicate that approximately 15 percent of Iraqi adults had an account in 2021, leaving millions operating entirely in cash. Business registration remains slow and bureaucratic. Compliance is selective. Corruption is systemic. The result is an economy that functions largely outside formal institutions, not by choice, but by necessity.

This is why the United Arab Emirates (UAE) matters as a counterexample. The UAE demonstrates that financial inclusion in the Middle East is not constrained by culture, religion, or geography, but by governance. In the UAE, business formation is fast and predictable. Banking access is integrated with digital identity systems. Regulatory clarity allows entrepreneurs, investors, and nonprofits to operate with confidence. The country is fully connected to the global financial infrastructure; as a result, most economic activity flows through formal channels rather than around them.

Where institutions work, people use them. Where they do not, people route around them.

Bitcoin did not facilitate the informal economy in Iraq, Lebanon, or Afghanistan. It simply plugged into it. For NGOs, journalists, translators, and civil society actors operating under authoritarian pressure, access to banking services is often explicitly denied. Accounts are frozen, transfers delayed, or services terminated without explanation. In that environment, Bitcoin became operational infrastructure. Not because it was ideal, but because it functioned when formal systems failed.

For ordinary people, the lesson became unavoidable after Lebanon’s collapse. By February 2023, the Lebanese pound had lost more than 98 percent of its pre-crisis value. Banks trapped depositors behind capital controls while political elites moved their money abroad. Savings accumulated over decades vanished. Trust in financial institutions was destroyed.

In countries like Iraq and Lebanon, there is no meaningful private pension system for most workers, nor easy access to global equity markets. No retirement accounts. No inflation-protected savings. For many middle-class professionals, Bitcoin became the first asset they could hold that was not directly tied to a collapsing currency or a predatory financial system. Dismissing this as speculation misunderstands the environment. This was defensive behavior in the absence of alternatives.

The irony is that access to technology was never the constraint. By the end of 2023, about 64 percent of people in the Middle East and North Africa subscribed to a mobile service, and nearly half used mobile internet. They had the hardware, but lacked institutional access.

The real obstacles to broader adoption are misinformation, lack of education, poor localization, and the absence of trusted local networks. Wallets built for English-speaking, technically literate users will not serve rural communities in Arabic, Dari, or Pashto. Trust matters more than apps. Where people know someone who can convert digital value into usable local currency when needed, adoption grows. Where they do not, it stops.

This is not new. Hawala systems (an ancient, informal trust-based system for transferring money across borders without physically moving cash, relying on a network of brokers) have existed for centuries for exactly the same reason. When formal institutions fail, people route around them. Bitcoin is simply the first global, digital version of a much older instinct.

The policy implication is uncomfortable but clear. Governments across the Middle East can regulate Bitcoin, restrict it, or condemn it, but none of that addresses the underlying failure. The more useful question is why citizens in some countries feel safer holding value in a volatile digital asset than in their own banking system, whereas in places like the UAE, they do not have to make that choice.

Financial inclusion is not about banning alternatives. It is about building institutions that people trust. Unless governments in the region embrace effective, predictable governance instead of control and obstruction, parallel systems will keep emerging as the only workable alternative.

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