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The Takeaway:

So far, it appears using bitcoin (BTC) in a war zone may be riskier than cash, especially when illicit actors use cryptocurrency as well as civilians.

The ongoing civil war in Yemen highlights the contradictions underlying bitcoin adoption: Its difficult for civilians to acquire cryptocurrency without heavily regulated infrastructure that makes them vulnerable to coercion and surveillance. Such is the case in Yemen, where the Iran-backed Houthi militia controls the northern half of the country and a failing government controls the central bank in the south.

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For most people in Yemen, purchasing bitcoin is nearly impossible. Most international companies avoid doing business in Yemen due to concerns over U.S. sanctions, which arent comprehensive like the sanctions against Iran but nonetheless raise compliance questions. This week the United Nations Security Council approved further sanctions against Yemen in an attempt to curtail arms trading between Iran and the Houthis. With the Houthis now functionally governing the northern half of the country, the Trump administration may reportedly suspend humanitarian aid.

Everyones looking at a timeline of a month or two. Thats the point at which different [donors] will start to suspend some of the programs, a senior U.S. State Department official told Reuters on Tuesday.

Plus, peer-to-peer markets are hampered by both cash shortages and a lack of reliable communications infrastructure. Yemeni-American researcher Ibraham Qatabi at the Center for Constitutional Rights said telecom and electricity companies are owned by governments, both foreign and domestic, depending on the region. Theres no need for a warrant if Big Brother already owns the pipes. Plus, Qatabi said, most international money transfers are monitored by local authorities.

Everything is monitored. They have everyones information, Qatabi said. If they want to go after somebody, theyll have access to those files.

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Hamza Alshargabi, a doctor who worked in Yemen until 2012 and briefly mined ether (ETH) after he immigrated to the U.S., agreed its almost impossible to get a safe and reliable internet or phone connection in most of Yemen. He said in big cities connectivity is so expensive that its unusable, so he cant imagine his sister using bitcoin in Yemen. Although someday mesh networks may help bitcoiners transact without reliable internet, theres hardly any bitcoin to trade on the ground.

Meanwhile, it appears the Houthis are promoting cryptocurrency adoption, just not censorship-resistant bitcoin.

According to a report from the Yemen-focused Sanaa Center for Strategic Studies (SCSS) in December 2019 the Houthi militia instructed civilians in northern Yemen to trade in the internationally recognized bills for an equivalent amount of e-Rials, a cryptocurrency developed by the militant group.

As such, some Yemeni civilians and expats are scared to be associated with cryptocurrency, including bitcoin. If protests last year in Iran and Lebanon offered a peek at bitcoins limitations, then Yemen is the full picture of bitcoin usage still relying on government infrastructure.

Cryptocurrency has itself become a weapon in Yemens civil war.

By issuing a digital currency, the Houthis strived to establish a circular economy with less dependence on banks hostile to their cause. The group even banned the possession of new Yemeni rial bills.

They are denying the government the most basic function, printing money, Alshargabi said. At least in Iran there is a lot of wealth and oil, commerce they can build around. In Yemen, theres nothing to sell.

This isnt the Houthis first crypto venture. The group has been mining decentralized cryptocurrencies since 2017, according to the cybersecurity company Recorded Future, which declined to comment for this article. It is not clear which currencies the Houthis mined. However, some Iranian military leaders are looking to create cryptocurrency tools in order to circumnavigate sanctions. And, according to the Brookings Institute, Irans influence with the Houthis is growing.

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Perhaps this is, in part, why the Houthis tested a payments pilot in April 2019, using the Houthi-run Yemen Petroleum Company and other public institutions, like the Yemeni Telecommunications Corporation. But the employees protested and refused to accept e-Rial salaries.

Nine months on, the e-Rial can still only be used to pay limited expenses, such as water and electricity utility bills and mobile phone services, the recent SCSS report noted. There is currently no mechanism for using the e-Rial for normal daily economic activities.

One SCSS researcher, who requested anonymity for safety, said the Houthis started these cryptocurrency experiments to deal with a local cash shortage. He added bitcoin may be caught in a paradigm where, socially, people mostly trust sources a friend or relative personally vouched for. Yet, talking about bitcoin on social media or local phone networks could get that person targeted.

(Note that all sources for this article commented from the Yemeni diaspora, due in part to what the SCSS researcher described as a high level of scrutiny through local telecommunications networks and general concerns about monitoring financial activities in the area.)

Thats why Alshargabi eventually stopped mining ether in the U.S., scared the American government would profile him for additional surveillance. Even if he has no connection to illicit crypto users in Yemen, Alshargabi isnt confident the legal system would protect a foreign-born Muslim.

How do I know Im not going to get a knock on my door someday? Alshargabi said.

So Alshargabi sends money to family in Yemen the old-fashioned way instead.

You call your friend and say, You give my mom $200 and Ill give your mom over here $200. There are regular people in that type of business, he said.

This same ad hoc system Alshargabi uses to send his family cash also works for the few civilians in Yemen who want to own bitcoin, not e-Rials.

Since most global cryptocurrency exchanges dont accept credit cards or bank transfers from Yemen, small groups of crypto-curious Yemenites show personal relationships across the diaspora are the key to accessing bitcoin in times of crisis.

Such was the case for a small group of roughly eight friends around 2018, including computer science student Manal Ghanem. She didnt buy any herself, just played with simulations and testnets. But a few of her friends with family abroad got bitcoin by using foreign bank accounts on global exchanges. One bitcoiner would shop online for foreign products, then sell it locally for cash, she said, because shipping was the least difficult part of the cumbersome process.

I do believe with the collapsing financial institutions in Yemen, if people get a bit educated they can leverage bitcoin to their benefit, she said. They are eager to create new opportunities but it can be really dangerous to go online and gamble what little you have and then lose.

Her friend Faissal Alshaabi said he struggled to use exchanges in Yemen because his internet connection was too weak to even load a website. Alshaabi turned to a cloud mining service instead, but American regulators shut it down and he lost his capital.

Despite all these challenges, Alshaabi said he still believes cryptocurrency could be useful inside Yemen.

Its a fast way to send money and with low fees, so I think people would use it as payment method, he said.

In the meantime, the most important thing Yemenites can do is establish situations where they can acquire bitcoin without attracting the wrong type of attention. This education requires in-person meetings. Governments may not be able to confiscate your bitcoin, but they can take your life.

In terms of increasing awareness, that would have to be verbally transmitted, the researcher said. Its too soon for bitcoin.

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Yemens Civil War Shows the Dangers of Crypto - Yahoo Finance