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Egypt Lays Out Path for a Crypto Future With Draft Law

The Egyptian government is ready to overcome years of uncertainty on crypto, with new laws reportedly coming by the end of 2019.

In the end of May 2019, the Central Bank of Egypt (CBE) announced that it is working on a draft law for crypto-related activities. When introduced, it will oblige financial institutions in the country to obtain licenses in advance for creating, advertising or operating platforms that issue or facilitate trading of cryptocurrencies. Licenses will be issued by the CBE’s board of directors. This marked the first step the Egyptian government made toward the legalization of activities related to cryptocurrencies.

Is Egypt defining its stance on crypto?

Is Egypt Defining Its Stance on Crypto?

The state’s attitude toward the new sector of the economy, especially the financial structures in Egypt has always been unstable. Bitcoin (BTC) and cryptocurrencies only began to be widely discussed in 2015, when the startup Yellow launched a bitcoin voucher service. In fact, it was the first service in the region of the Middle East and North Africa that allowed Egyptian citizens to buy bitcoin for the national currency through the use of vouchers.

According to the creator of the service, David El Achkar, only 10% of Egyptian citizens had bank cards and accounts. So, he saw the prospect for widespread use of bitcoin and other cryptocurrencies in the country.

And he was proven right. Cryptocurrencies quickly became popular among the citizens, partially due to the unstable financial situation in the country. Crypto-enthusiast Ahmed Elmogy claimed that many Egyptians preferred money transfers in bitcoin as a convenient and cost-effective instrument. But even then, he noted that the government of the country was rather sceptical about new technology and digital currencies due to a poor understanding of the essence of this technology.

His words were confirmed in July 2017, when the Egyptian government made a tough statement that indicated that cryptocurrencies carried a certain risk, as they could be used by terrorist groups to finance their activities anonymously.

Since then, the financial situation in the country continued to deteriorate, and just a month after the announcement, in August 2017, news surfaced that Egypt would be getting its first crypto exchange — i.e., Yellow — which was supposed to start trading in September 2017. The exchange was supposed to be the first service where the Egyptian pound could be exchanged for digital currencies in a bitcoinpound trading pair, without the use of other currencies like the United States dollar.

But in January 2018, a high-ranking official on religious law, Grand Mufti Shawki Allam, called bitcoin trading illegal under Islam’s Sharia law, as bitcoin was not an “acceptable interface of exchange” and therefore unlawful to trade it. The cleric also said that bitcoin was a tool for money laundering and indicated that it was not under the control of any government, and so it could potentially undermine the economy of Egypt.

On the road to a national cryptocurrency

The government employed a strict attitude toward cryptocurrencies until the end of 2018, when, in late winter, the government had to look for ways to cut costs. Then, the representative of the CBE said that the government wanted to introduce a digital version of the Egyptian pound. The bank worked on a feasibility study of such a maneuver.

There were claims that Egypt believed that the digital version of its blockchain-based paper currency could help to minimize the government’s expenses on issuing paper money and transactions compared to coins and bank notes, which was the first step toward a cashless society.

But further development and research stumbled. The CBE did not introduce and did not issue its cryptocurrency, perhaps because of the low awareness and understanding of blockchain technology or possibly due to real economic problems, because of which a digital national cryptocurrency was not the primary goal.

As it turned out, the government did not abandon the idea of a national cryptocurrency and in May 2019, it announced the intention to issue licenses for fintech firms and banks, which in turn would allow them to issue and trade cryptocurrencies, as well as process transactions. The purpose of the future law is to establish state control over the development of new technologies in the financial and banking sectors. The law is expected to become the basis for digital payments in the country.

A possible reason for this step by Egyptian authorities is the interest of neighboring countries in the development of blockchain industry. For example, representatives of the United Arab Emirates and Saudi Arabia announced at the beginning of the year a cooperation in order to create a joint cryptocurrency, which will be used as cross-border digital asset between the banks of both countries.

Experts from both countries discussed the jointly integrated strategy, including initiatives in such areas as civil aviation, financial literacy for young people and the creation of a digital currency intended for cross-border payments. Earlier, UAE-based payment company UAE Exchange created a blockchain payment system together with Ripple.

But the legal status of cryptocurrencies in Egypt is still uncertain — i.e., it is not defined. The CBE has yet to determine its position on digital currencies and their place in the country’s economy. But, what is pleasing, however, is that the authorities have moved away from the path of prohibitions that will enable exchanges to conduct their business in the country.

At the same time, some on Twitter have questioned whether the prohibition of cryptocurrency trading in Egypt was ever present:

Rules are welcome

So, the licensing of cryptocurrency exchanges is an ambiguous thing. For ordinary users the most important issue is the safety of their funds. Licenses do not contribute to this: Hackers might break into any exchange and do not pay attention to their legal status, just as in the recent attack on a highly compliant exchange, Binance. Having crypto exchanges without any sort of regulation in this day and age would be unthinkable, since such a young industry is full of fraud.

Therefore, it seems like the Egyptian authorities have managed to overcome the sharp denial of cryptocurrencies and have recognized the importance of fintech companies in the country.

The development of licenses in Egypt also marks a step toward the development of a digital economy, which is widely discussed in most western countries. Surely the confirmation of digital payments, exchanges and transfers requires deep learning and testing. But the Egyptian mood regarding cryptocurrencies has been changing for a while, ever since the CBE reported on developing a digital version of the national currency.

The main problem the government wanted to solve was the increasing complication of printing bank notes. The cheaper it is to create money, the less destructive will the inflation be for the country’s economy. Besides that, the transfer to a cashless society provides many more tools to maintain the general welfare of the country. The regulation of cryptocurrencies in Egypt isn’t expected until the end of 2019, but the licenses must become sufficient until that time comes.

No more prejudice

It is clear that there are still a lot of questions and uncertainties about both the new law and the Egyptian government’s approach to cryptocurrencies. But some experts are optimistic about any attempt of the state to welcome the new technology.

Vladimir Mazaev, an analyst for the ratings website ICObench, shared his opinion on the possible future of crypto in Egypt:

“Egypt lifted the ban on cryptocurrency last week, and now it allows licensing cryptocurrency companies. Cryptocurrencies can potentially do much for countries like Egypt, but the country has serious problems with trust in digital assets, given their volatility and the alleged connection with money laundering and related criminal activities.”

According to him, however, the position is understandable, as Egypt was trying to mitigate the risks of dealing with an unknown technology, but the positive fact was that the country has been looking at cryptocurrencies for a couple of years, which suggests that the government had enough time for an in-depth study of crypto technology. Mazaev went on to add:

“Egypt has traditionally taken a highly risk-averse stance to decentralized cryptocurrencies such as Bitcoin, stepping up its public rhetoric since the country’s first crypto exchange in August 2017.”

The fact that Egypt has begun to switch its approach may signal that it is ready to accept the progress of crypto, gain new streams of income and even open up a new sector of the economy. Perhaps such a long wait to remove the ban was not accidental. The government was possibly studying how other progressive countries, such as the UAE, successfully issued licenses for cryptocurrencies exchanges, which ensured the security of digital assets. And now, Egypt is also potentially ready to repeat that successful experience while taking minimal risks.

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Egypt: Central Bank’s Draft Law Requires Licenses for Crypto-Related Activities

A new draft banking law will make it mandatory to obtain licenses in advance of operating platforms for issuing or trading crypto.

A new banking law drafted for the Central Bank of Egypt (CBE) would make it mandatory to obtain licenses in advance of creating, advertising or operating platforms for issuing or trading cryptocurrencies. The news was reported by online newspaper The Egypt Independent on May 28.

Citing an official source’s remarks to the Egyptian MENA news agency, the Independent states that if passed, the draft bill will also empower the CBE’s Board of Directors to determine and issue rules for the trading and handling of cryptocurrencies in the country.

According to the official source, the draft law reportedly aims to keep pace with fintech developments and the application of new technologies in the banking and financial services sectors.

Pending regulatory rules and procedures to be issued by the CBE’s Board of Directors, the new law will accordingly establish legal status for the electronic authentication of bank transactions, electronic payment orders and transfer orders.

The law will moreover ostensibly provide a legal basis for the electronic settlement, issuance and circulation of electronic checks, as well as electronic discount orders, the Independent notes.

The CBE’s Board of Directors will broadly determine technical criteria that would grant legal authenticity to digital mechanisms equal to traditional papers, the official source reportedly added.

As reported earlier this month, the National Bank of Egypt recently participated in a major multinational and multibank trial of a system for letter of credit transactions using blockchain consortium R3’s platform.

In December 2018, the CBE was reported to be conducting feasibility studies for the prospective issuance of a digital version of the Egyptian pound in order to help cut the costs of issuing and transacting physical coins and banknotes.

The country has nonetheless historically taken a highly risk-averse stance to decentralized cryptocurrencies such as bitcoin (BTC), with the CBE having stepped up its antagonistic rhetoric ahead of the launch of the country’s first crypto exchange in August 2017.

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Egypt’s Central Bank Conducting ‘Feasibility Studies’ Around Digital Currency Issuance

A sub-governor from the central bank of Egypt has said the entity is looking into issuing a blockchain-based digital currency.

The central bank of Egypt wants to introduce a digital version of the Egyptian pound to reduce costs, local English language news outlet Amwal Al Ghad reported Dec. 16.

Ayman Hussein, sub-governor of the Central Bank of Egypt (CBE), told an Abu Dhabi conference on Sunday that “feasibility studies” were currently ongoing.

In line with various authorities in the vicinity, Egypt believes a blockchain-based digital version of its fiat currency can help keep issuance and transaction costs to a minimum compared to coins and banknotes, Amwal Al Ghad notes.

The move is one step in the journey to a cashless society.

“A number of international institutions” are involved in the studies, Amwal Al Ghad reported Hussein as saying, “without disclosing names or specifying whether the anticipated currency would be traded for banks only or between banks and clients.”

Egypt has traditionally taken a highly risk-averse stance to decentralized cryptocurrencies such as Bitcoin (BTC), stepping up its public rhetoric since the country’s first crypto exchange launched in August 2017.

At the time, CBE reacted saying there was no “legislation or law” in force “allowing” such activities to take place, the Egypt Independent reported. The exchange, Bitcoin Egypt, was not able to be found online today at press time.

In January this year, the country’s top cleric meanwhile added to the anti-crypto stance, declaring Bitcoin trading forbidden in Islam, while an advisor subsequently told local daily Egypt Today that Bitcoin is “used directly to fund terrorists.”

The Turkish government has also warned over the incompatibility of Bitcoin trading and Islam, while a report in April from an Indonesian-based fintech startup concluded that the coin is “generally permissible” under Sharia law.

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Banks and Cryptocurrencies Global Evaluation: Africa

Bitcoin and blockchain tech are ripe for mainstream adoption in Africa, where the population is well positioned to embrace the innovative technologies as alternatives to the expensive and/or outdated banking systems scattered across the continent.

Lack of economic infrastructure paired with inadequate financial education has left a large portion of Africans without bank accounts or basic monetary means. However, in many countries the proliferation of smartphones has allowed access to alternative financial services which have become a dominant means of payment, especially among the high proportion of millennials.

Bitcoin’s appeal is in large part due to its accessibility and inclusivity, but the trust-free component of using cryptocurrencies also resolves the long standing issue of Africans’ distrust of banks on online payment platforms.

The pan-African crypto community officially launched the continent’s first multinational cryptocurrency, Nuru Coin, in February. Many hope it will help facilitate trade among African countries and provide financial services to people who otherwise would never have access to a traditional bank account. But mainstream adoption of its use requires more awareness of the potential benefits of the technology.  

Anticipation of a tech-revolution in Africa has been escalating since late 2017. Governments have shown little uniformity in their approach and attitude toward the booming crypto markets on the continent, but the underlying sentiment toward cryptocurrencies and decentralization is that it can provide humanitarian relief and transform the lives of underserved populations.

The following assessment of cryptocurrency regulation in Africa is a part of a larger series of pieces evaluating regulation of the flourishing global fintech industry. Part one of the series looks at activity in Asian hotspots like Japan, Hong Kong, Singapore, and Taiwan, and how governments are facilitating or hindering growth. Part two examines crypto regulation and the critical attitudes held by many European leaders. Part three analyzes the varying attitudes of western leaders on the disruptive new technology, and how regulatory agencies in the Americas are preparing for mainstream adoption of cryptocurrency.

The list below is based on thorough news research, but should in no way be considered complete. If you have more detailed information on banks and the crypto relationship in your country, we encourage you to share it in the comment section.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, and you should conduct your own research when making a decision.

LEGEND

South Africa

South Africa 

South Africa launched its first governmental cryptocurrency startup, Project UBU, in late 2017. Similar to other projects that aim to alleviate impoverished families, the objective of Project UBU is to distribute universal basic income to underprivileged South Africans.

Blockchain and cryptocurrencies are popular in South Africa, where financial institutions are taking notably progressive steps toward involvement in the industry. The Blockchain Africa Conference has convened every year since 2015 in Johannesburg, and partners with IBM and Microsoft, which have been the biggest contributors to Africa’s technological development over the past century.

The South African Reserve Bank established a Financial Technology Program, which aims to analyze fintech developments and advise the government on appropriate regulations. Additionally, it launched a blockchain project based on Ethereum’s distributed ledger technology and will experiment with interbank payments.

Although the government has not set clear regulations and rules for using virtual currency, it does not recognize Bitcoin as legal tender, and the South African Revenue Service considers cryptocurrencies intangible assets that are subject to normal income tax rules.

Nigeria

Nigeria

The Central Bank of Nigeria first announced a commissioned study on virtual currencies in August 2017, with an objective to gather stakeholders to brainstorm and exchange ideas–proving the country to be a leader in blockchain and Bitcoin regulation in Africa.

Shortly thereafter, the Blockchain Education Network of Nigeria and Blockchain Nigeria User Group hosted the country’s first blockchain conference, where ten startups and countless industry leaders were present and discussed incentives to bring blockchain startups to Nigeria.

Another conference hosted by Techpoint scheduled for later this month will supposedly have over 5,000 people in attendance. But the active tech community has yet to see any regulatory response or direction from the government.

Things could be changing soon, however. Earlier in April the lower chamber of the Nigerian National Assembly adopted a bill titled “Need to Regulate Blockchain Applications and Internet Technology,” and called on the central bank to assist in creating regulatory framework for blockchain developments and other fintech.

Uganda

Uganda

The Bank of Uganda issued a warning to investors about the associated risks with cryptocurrency in March of last year. However, this has not stopped global investors from opening exchanges in the country and pursuing opportunities to strengthen the Ugandan economy.

Recent reports show the Ugandan government is interested in using blockchain tech to provide basic public services and to better position Uganda in the global marketplace, which is largely driven by technological innovations. A conference hosted by AfricanBlockchain.org is scheduled to take place next month where leaders will discuss viable plans to integrate blockchain into the economy.

The Ugandan blockchain organization, Crypto Savannah, partnered with the global crypto exchange Binance in April in an effort to support economic development in the country, which is considered the poorest country in the world with a GDP of $2,000 per capita and a population where 77 percent are bankless.

Kenya

Kenya

The Central Bank of Kenya issued a warning to banks in April, urging them to reject crypto related transactions and entities, and likened Bitcoin to a pyramid scheme. But Kenyan crypto investors have yet to see any clear regulatory guidelines.

The central bank’s governor expressed support of blockchain technology, though banks have maintained a cautious and skeptical attitude toward digital currency since 2015.

Finterra, a globally present blockchain company, officially established a Kenyan firm in response to the heightened interest in blockchain after President Uhuru Kenyatta said the country should explore the technology’s potential utility.

A blockchain task force was created under the president’s directive in March. Many enthusiasts hope to see distributed ledger technology be utilized for land ownership registry, and for strengthening existing mobile money services.

Kenya’s largest mobile network operator is responsible for launching M-Pesa, the mobile phone money transfer and payment service, which boasts 30 million users and increasingly challenges the dominance of traditional banking. However, regulatory uncertainty in Kenya led M-Pesa to deny services to Bitcoin trading platforms.

Egypt

Egypt

In early 2017, a local Bitcoin enthusiast likened the use of cryptocurrency in Egypt to that of narcotic drug use, claiming a friend was jailed without trial for using the site localbitcoins.com.

By mid 2017, when reports surfaced with claims that the first Bitcoin exchange had launched in the country, the Central Bank of Egypt reiterated the legal status of cryptocurrency and denied that any exchanges had been authorized.

The legality of cryptocurrency is covered by Egyptian law that stipulates transactions with foreign entities be limited to official banks only, and also bans electronic banking.

Despite the recent announcement by an Islamic cleric claiming virtual currencies are halal, there is confusion in Egypt over the acceptance of digital currency under Sharia law. Historically speaking, Islam only recognizes “commodities of intrinsic value” as acceptable currency.

The government consistently rules against cryptocurrency, but it recently allowed the Central Bank of Egypt to join the American-based R3 blockchain consortium to experiment with evolving technologies.

Rwanda

Rwanda

The Transform Africa Summit in Kigali, Rwanda, attended by over 4,000 delegates including heads of state, fintech companies, blockchain experts, government regulators, AI firms, investment banks, and venture capitalists, took place recently on May 7-10.

The diverse turnout with representatives of both public and private sectors, and the conference’s theme, “Accelerating Africa’s Single Digital Market,” is exemplary of the collective effort by leaders to ensure that Africa is not left behind in the oncoming digital revolution.

The National Bank of Rwanda published a document earlier this year detailing the bank’s position on cryptocurrency and the potential risks associated with the new cryptocurrency market in regard to established financial institutions. The bank concluded that its preparations for mainstream adoption of cryptocurrency include creating and regulating a bank-owned currency.

The Kenyan-based blockchain payments platform, Bitpesa, has expanded over East Africa since it was established in late 2013, yet the cryptocurrency trend hasn’t been confronted with a regulatory response from the governments in the region. The forewarning from the National Bank of Rwanda, however, proves that monetary authorities in these places are preparing for the next technological wave.

Zimbabwe

Zimbabwe

At the end of last year, Zimbabwe’s central bank, the Reserve Bank of Zimbabwe, announced that Bitcoin is not considered a legal currency. During a period marked by political turbulence, the bank claims to be engaging in research and development of possible regulations for crypto markets, but the future of Bitcoin is still up in the air as there have been no proposed regulations. 

The central bank’s announcement came days after a military coup successfully overthrew the Zimbabwean government, causing Bitcoin’s price to surge by 10 percent on Golix, the country’s largest cryptocurrency exchange.

Golix reportedly opened Bitcoin ATMs in the capital city and loaded them with U.S. dollars last month. Zimbabwe has some of the worst recorded inflation levels in modern history, and recently ditched its national currency for a multi-currency system that heavily relies on the U.S. dollar.

Tanzania

Tanzania

Onlookers took note of Bitcoin’s growth in Tanzania when trading volume on the exchange, LocalBitcoins, spiked last summer. The increase of Bitcoin use in Tanzania is a significant indicator that cryptocurrency is expanding from African crypto hotspots like Nigeria to rural nations.

The Central Bank of Tanzania commented on the recent Bitcoin price surge in March by linking it to market speculation, and cautioned investors who are buying and selling in the high-risk market. Bitcoin first caught the bank’s attention last December, and it has since been studying Bitcoin carefully in order to create viable regulations in the future.

The Tanzanian government has not officially banned cryptocurrencies, and the crypto community in the country is awaiting regulatory direction from the bank and other regional regulators.

Botswana

Botswana

Although there is no Bitcoin exchange present in Botswana, the country maintains a small but active cryptocurrency and blockchain community. Many traders travel to neighboring countries like South Africa to use exchanges, or utilize online trading groups.

However, Botswanans have taken an interest in blockchain and have held the country’s first ever Bitcoin and Blockchain Summit in 2016. The country currently has three blockchain startups, all of which aim to serve the needs of the largely unbanked population.

The Bank of Botswana has not issued any regulations for the market, and at the end of 2017 claimed it had no interest in studying cryptocurrencies in general.

Ghana

Ghana

In 2015, the Bill and Melinda Gates Foundation donated a research grant to a Ghana-based blockchain startup, Bitsoko, with the objective of promoting acceptance of mobile money for everyday use, and providing a cheap and efficient cross-border payment system.

However, Ghanaian banks are restricting the use of cryptocurrency out of concern for its use in illegal activity, like money laundering and terrorist funding. The central bank of Ghana announced Bitcoin is not legally recognized earlier this year, but hinted at an interest in blockchain tech to enhance payment and settlement systems.

Morocco

Morocco

The Moroccan Foreign Exchange Authority and central bank officially outlawed cryptocurrency transactions in late 2017, and sending and receiving payments is punishable by fine. The Foreign Exchange Authority insisted all foreign payments must pass through authorized intermediaries and the central bank.

Algeria

Algeria

The National People’s Congress of Algeria proposed a finance bill at the end of 2017 which will declare Bitcoin usage and ownership illegal if signed into law.

Other provisions of the bill address the potential of cryptocurrencies being used for illegal activity, such as for drug trafficking and tax evasion, which is likely the cause of concern and strict response from the government.

Ethiopia

Ethiopia

The Ethiopian Ministry of Science and Technology signed an agreement with the cryptocurrency startup Cardano earlier this month. The memorandum of understanding signed by the two parties intends to guide blockchain development and training for the country’s agritech industry.

More specifically, the ministry is said to be collaborating with Cardano to create a blockchain application for coffee shipments, the country’s largest export.

Sierra Leone

Sierra Leone

Media hype centered around the possibility that Sierra Leone used blockchain tech to tally votes in the most recent presidential election ended with disappointment and allegations.

The National Electoral Commission responded to the media speculation and denied that it used the voting tech company Agora for the national election. Agora also responded, saying it did play a legitimate role as an international observer, but did not serve in any official capacity in terms of election results.

The first, second and third volumes of our Banks and Crypto Evaluation were about Asia, Europe and Americas respectively.

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Report: Stealth Crypto Mining Much More Prevalent In Higher Ed Than Other Industries

Both intentional cryptocurrency mining and cryptojacking is becoming more prevalent on college campuses than in any other industry, according to a blog post published March 29 by cyber attack monitoring firm Vectra.

Vectra analyzed five industries where crypto mining – which the blog post defines as “an opportunistic attack behavior that uses botnets to create a large pool of computing power”, incorrectly combining crypto mining and cryptojacking into one use case – has occurred from August 2017 to January 2018, finding that “higher education” sees more mining than the other four industries combined.

Top 5 Industries with Bitcoin

Universities are not able to monitor their networks as strictly as corporations, “at best advis[ing] students on how to protect themselves and the university by installing operating system patches and creating awareness of phishing emails, suspicious websites and web ads,” leaving college campuses more open to cryptojacking schemes. The blog post notes that given the “free source of power” provided by universities to their students (meaning free of charge to students, not free of charge in essence), “[l]arge student-populations are ideal pastures for cryptojackers.”

Students, rather than malicious cryptojackers, taking advantage of this “free power” are “simply being opportunistic as the value of cryptocurrencies surged over the past year,” Vectra’s blog post writes.

Joey Dilliha, a student at Western Kentucky University, told financial news site MarketWatch that he mines crypto with a Bitmain Antminer in his room with his school’s “free electricity”:

“I believe more people should be doing it. It’s a super fun, and cool cheap way to be introduced to the market of mining.”

Dilliha adds that because the mining rig is actually a banned item in his dorm – due to it being a fire hazard – he has to “turn it off and put a blanket over it” during “dorm room check days,” adding that his “RA loves to come in and talk about it with me.”

 In January of this year, Stanford University had posted a warning against crypto mining on campus, as school resources “must not be used for personal financial gain,” as well as citing the school’s chief information security officer:

“Cryptocurrency mining is most lucrative when computing costs are minimized, which unfortunately has led to compromised systems, misused university computing equipment, and personally owned mining devices using campus power.”

Vectra also notes the problems with cryptocurrency mining and crypto jacking as “creat[ing noise that can may [sic] hide serious security issues; […] impact[ing] the reputation of an organization’s IP address […] ; [allowing] cybercriminals [to] buy access to compromised computers to launch targeted attacks against universities.”

Vectra’s blog post, which has already several times confused crypto mining and cryptojacking, then goes into detail about the mechanics of cryptojacking, mentioning Coinhive and the CryptoNight algorithm-based Monero as common ways for cryptojacking to take place.

Cointelegraph recently reported on the ethics of cryptojacking, citing both cases where permission was asked before taking over a computer’s processing power to mine (like Salon.com) as well as malicious or unknown use cases (like Showtime and Telecom Egypt).

In conclusion to their blog post, Vectra writes that

“Cryptojacking and cryptocurrency mining are profitable, opportunistic endeavors that will likely increase as they replace ransomware and adware as the de facto method for individuals looking to make a fast buck.”

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Monero Mining Malware Attack Linked to Egyptian Telecom Giant

Unidentified entities at a telecom company connected to the Egyptian government are using malware to trick Middle Eastern Web users into unwittingly mining monero, according to a new report.

Internet users in Turkey and Syria who downloaded Windows applications such as Avast Antivirus, CCleaner, Opera, or 7-Zip were unknowingly redirected to malicious versions with malware, the University of Toronto’s Citizen Lab claimed in a study published Friday.

The report – which calls this scheme “AdHose – explained:

“We found that a series of middleboxes on Türk Telekom’s network were being used to redirect hundreds of users attempting to download certain legitimate programs to versions of those programs bundled with spyware….We found similar middleboxes at a Telecom Egypt demarcation point. The middleboxes were being used to redirect users across dozens of ISPs to affiliate ads and browser cryptocurrency mining scripts.”

Telecom Egypt is a major state-owned telecommunications company, and the middleboxes in question include Sandvine PacketLogic devices, which have been associated with government surveillance in Turkey and Syria. The researchers’ regional network sweep in January found 5,700 devices affected by AdHose.

When reached for comment, Sandvine pushed back against the report’s findings, telling CoinDesk:

“Based on a preliminary review of the report, certain Citizen Lab allegations are technically inaccurate and intentionally misleading….We have never had, directly or indirectly, any commercial or technology relationship with any known malware vendors, and our products do not and cannot inject malicious software. While our products include a redirection feature, HTTP redirection is a commodity-like technology that is commonly included in many types of technology products.”

The spokesperson also said that an investigation into the allegations is being undertaken because the company is “deeply committed to ethical technology development.”

The idea of cryptocurrency-fueled government spyware may seem far-fetched. However, researchers involved with the Tor Project’s Open Observatory of Network Interference noted a similar malware epidemic – minus the cryptocurrency mining element – in 2016. Tor researchers found the Telecom Egypt-owned internet provider TE Data, which controls the majority of Egyptian internet bandwidth, facilitated a man-in-the-middle attack with both malware and affiliate advertising.

Egyptian flag and bitcoin image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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Telecom Egypt Covertly Redirecting Internet Users To Crypto Mining Sites, Report Says

Devices found at Telecom Egypt demarcation points have been found to be surreptitiously redirecting Egyptian Internet users to advertisements and cryptocurrency mining sites, according to a report published by Citizen Lab at the University of Toronto Friday, March 9.

The technology research lab’s report explains that the scheme, referred to as Adhose, operates via middleboxes, computer networking devices for manipulating internet traffic. The report identifies two modes of redirection used on Egyptian citizens: “spray mode” and “trickle mode.” “Spray mode” means that a middlebox “redirects Egyptian Internet users en masse to ads or cryptocurrency mining scripts whenever they make a request to any website,” and is seemingly used “sparingly.”

“Trickle mode” means that only attempts to open certain URLs redirects users to these ads or mining scripts, specifically CopticPope.org (which was formerly the website of the Pope of the Coptic Orthodox Church of Alexandria) and Babylon-X.com (formely a porn site).

Coinhive, a Monero mining platform that positions itself to sites as an online advertising alternative, was also listed in the table of links for AdHose middleboxes to redirect Egyptian users.

Coinhive has previously been linked to a large case of cryptojacking at the end of January 2018, when hackers ran YouTube ads with a Coinhive script that secretly used up the users’ CPU power for mining. American cable network Showtime was also found to be using Coinhive on two of their websites as an alternative for advertisements back in September of last year, albeit without informing their customers. After Showtime’s surreptitious use of the mining script was exposed, Coinhive announced that in future it would seek permission from users before using their computers to mine Monero.

Citizen Lab’s report showed that the same middlebox that runs AdHose was also responsible for Internet censorship in Egypt, blocking websites for Human Rights Watch and the news outlet Al Jazeera.

The report noted as well that middleboxes in Turkey and Syria were redirecting users attempting to download software to different versions of the same software with spyware attached.

A fingerprint of a network injection of the middleboxes, deep packet inspection (DPI) devices, was patched with a second-hand PacketLogic device made by Canadian network equipment company Sandvine.

In the report, Sandvine denied that their products could be used in such a manner, and highlighted to Citizen Lab their human rights protection standards that prompt a review of a sale when the customer is part of a country ranked low on the Worldwide Governance Indicators.

Citizen Lab writes in their report that Sandvine’s safeguards have “come up short,” and recommends that the company begin engaging in “regular consultation with civil society regarding its human rights due diligence and business ethics program.”

While Egypt’s first Bitcoin exchange was reported to be opening in August 2017, the Egyptian government has taken a hard line against cryptocurrencies in the country. Egypt’s top cleric called Bitcoin (BTC) “unlawful” under Sharia law in January of this year.

A year earlier in February 2017, a Sharia law expert had told Cointelegraph that since Islam has historically only recognized “commodities of intrinsic value” as money, “Bitcoin probably misses the mark.” It is unclear how Monero or Coinhive’s mining script would thus fall under Sharia law.

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Bitcoin Violates Sharia Law Says Egypt’s Highest Religious Official, Issues Fatwa

Egypt’s highest official of religious law, Grand Mufti Shawki Allam, called Bitcoin trading “unlawful” under Sharia law, online publication Ahram reported today. In the fatwa issued Monday, Allam wrote that Bitcoin isn’t an “acceptable interface of exchange” and is therefore unlawful to trade. The cleric also cited Bitcoin’s potential for money laundering and pointed out that because it isn’t subject to any government’s control, Bitcoin could potentially undermine the Egyptian economy.

Allam further stated that Bitcoin negatively affects “dealers’ legal safety” and that:

“Bitcoin is forbidden in Sharia as it causes harm to individuals, groups and institutions.”

One of the grand mufti’s advisors told BBC that Bitcoin is “used directly to fund terrorists.” Egypt’s government is also no fan of cryptocurrencies, having called Bitcoin a “form of deception that falls under legal liability.”

Halal or not?

Back in February 2017, Cointelegraph spoke to several experts about Bitcoin’s status under Sharia law. Matthew Martin of Blossom Finance explained his belief that Bitcoin is halal, writing:

“As a payment network, Bitcoin is halal. In fact, Bitcoin goes beyond what more conventional closed banking networks offer. Unlike conventional bank networks which use private ledgers where there’s no guarantee that the originator actually owns the underlying assets, Bitcoin guarantees with mathematical certainty that the originator of the transfer owns the underlying assets. Conventional banks operate using the principle of fractional reserve, which is prohibited in Islam.”

Matthews did agree that Bitcoin isn’t likely to be considered money under Islamic law:

““Historically, though, Islam has only recognized commodities of intrinsic value as money including things like gold (Dinar), silver (Dirham); rice, dates, wheat, barley and salt. In a strict interpretation of what qualifies as money, Bitcoin probably misses the mark.”