Read complete article here: https://www.cnbc.com/2022/11/05/-in-bankrupt-lebanon-locals-mine-bitcoin-and-buy-groceries-with-tether.html
In bankrupt Lebanon, locals mine bitcoin and buy groceries with tether, as $1 is now worth 15 cents
PUBLISHED SAT, NOV 5 20229:34 AM EDT
When Georgio Abou Gebrael first heard about bitcoin in 2016, it sounded like a scam.
But by 2019, as Lebanon plunged into a financial crisis following decades of expensive wars and bad spending decisions, a decentralized and borderless digital currency operating outside the reach of bankers and politicians sounded a lot like salvation.
Gebrael was an architect living in his hometown of Beit Mery, a village eleven miles due east of Beirut. He had lost his job and needed to figure out another way to quickly get ahold of cash. In the spring of 2020, Gebrael says, the banks were closed and locals were barred from withdrawing money from their accounts. Receiving cash via international wire transfer wasn’t a great option either, since these services would take U.S. dollars from the sender and give Lebanese pounds to the recipient at a much lower rate than market value, according to the 27-year-old.
“I would lose around half of the value,” explained Gebrael of the experience. “That’s why I was looking at bitcoin – it was a good way to get money from abroad.”
Gebrael discovered a subreddit dedicated to connecting freelancers with employers willing to pay in bitcoin. The architect’s first job was to film a short commercial for a company that sold tires. Gebrael was paid $5 in bitcoin. Despite the tiny amount, he was hooked.
Today, half of Gebrael’s income is from freelance work, 90% of which is paid in bitcoin. The other half comes from a U.S. dollar-denominated salary paid by his new architecture firm. Beyond being a convenient way to earn a living, bitcoin has also become his bank.
“When I get paid from my architecture job, I withdraw all my money,” continued Gebrael. He then uses that cash to buy small amounts of bitcoin every Saturday. The rest he keeps as spending money for daily needs and home renovations.
Gebrael isn’t alone in seeking alternative ways to earn, save, and spend money in Lebanon – a country whose banking system is fundamentally broken after decades of mismanagement. The local currency has lost more than 95% of its value since Aug. 2019, the minimum wage has effectively plummeted from $450 to $17 a month, pensions are virtually worthless, Lebanon’s triple-digit inflation rate is expected to be second only to Sudan this year, and bank account balances are just numbers on paper.
“Not everyone believes that the banks are bankrupt, but the reality is that they are,” said Ray Hindi, CEO of a Zurich-based management firm dedicated to digital assets.
“The situation hasn’t really changed since 2019. Banks limited withdrawals, and those deposits became IOUs. You could have taken out your money with a 15% haircut, then 35%, and today, we’re at 85%,” continued Hindi, who was born and raised in Lebanon before leaving at the age of 19.
“Still, people look at their bank statements and believe that they’re going to be made whole at some point,” he said.
Despite losing nearly all of their savings and pension, Gebrael’s parents – both of whom are career government employees – are holding out hope that the existing financial system will rightsize at some point. In the meantime, Gebrael is covering the difference.
Others have lost faith in the monetary system altogether. Enter cryptocurrency.
CNBC spoke with multiple locals, many of whom consider cryptocurrencies a lifeline for survival. Some are mining for digital tokens as their sole source of income while they hunt for a job. Others arrange clandestine meetings via Telegram to swap the stablecoin tether for U.S. dollars in order to buy groceries. Although the form that crypto adoption takes varies depending upon the person and the circumstances, nearly all of these locals craved a connection to money that actually makes sense.
“Bitcoin has really given us hope,” Gebrael said. “I was born in my village, I’ve lived here my whole life, and bitcoin has helped me to stay here.”………………………………………………………..
A little over two years ago, Ahmad Abu Daher and his friend began mining ether
with three machines running on hydroelectric power in Zaarouriyeh, a town 30 miles south of Beirut in the Chouf Mountains.
At the time, ethereum — the blockchain underpinning the ether token — operated on a proof-of-work model, in which miners around the world would run high-powered computers that crunched math equations in order to validate transactions and simultaneously create new tokens. This is how the bitcoin network is still secured today.
The process requires expensive equipment, some technical know-how, and a lot of electricity. Because miners at scale compete in a low-margin industry, where their only variable cost is energy, they are driven to migrate to the world’s cheapest sources of power.
Abu Daher taps into a hydropower project which harnesses electricity from the 90-mile Litani River that cuts across southern Lebanon. He says he is getting 20 hours a day of electricity at old pre-inflationary rates.
“So basically, we are paying very cheap electricity, and we are getting fresh dollars through mining,” continued Abu Daher.
Ahmad Abu Daher and his friend began mining ether with three machines running on hydroelectric power in Zaarouriyeh, a town 30 miles south of Beirut in the Chouf Mountains. Abu Daher has since scaled his business to thousands of machines spread across Lebanon.
When 22-year-old Abu Daher saw that his mining venture was profitable, he and his friend expanded the operation.
They built their own farm with rigs acquired at fire sale prices from miners in China and began re-selling and repairing mining equipment for others. They also started to host rigs for people living across Lebanon, who needed stable money but lacked the technical expertise, as well as the access to cheap and steady electricity — a highly coveted commodity in a country with crippling electricity blackouts. Abu Daher also has customers outside of Lebanon, in Syria, Turkey, France, and the United Kingdom.
It has been 26 months since they first set up shop, and business is thriving, according to Abu Daher. He says that he had profits of $20,000 in September — half from mining, half from selling machines and trading in crypto.
The government, facing electrical shortages, is trying to crack down.
In Jan., police raided a small crypto mining farm in the hydro-powered town of Jezzine, seizing and dismantling mining rigs in the process. Soon after, the Litani River Authority, which oversees the country’s hydroelectric sites, reportedly said that “energy intensive cryptomining” was “straining its resources and draining electricity.”
But Abu Daher tells CNBC he is neither worried about being raided — nor the government’s proposal to hike up the price of electricity.
“We had some meetings with the police, and we don’t have any problems with them, because we are taking legal electricity, and we are not affecting the infrastructure,” he said.
Whereas Abu Daher says that he has set up a meter that officially tracks how much energy his machines have consumed, other miners have allegedly hitched their rigs to the grid illegally and are not paying for power.
“Basically, a lot of other persons are having some issues, because they are not paying for electricity, and they are affecting the infrastructure,” he said.
Rawad El Hajj, a 27-year-old with a marketing degree, found out about Abu Daher’s mining operation three years ago through his brother.
“We started because there is not enough work in Lebanon,” El Hajj said of his motivation to jump into mining.
El Hajj, who lives south of the capital in a city called Barja, began small, purchasing two miners to start.
“Then every month, we started to go bigger and bigger,” El Hajj told CNBC.
Because of the distance to Abu Daher’s farms, El Hajj pays to outsource the work of hosting and maintaining the rigs. He tells CNBC that his 11 machines mine for litecoin and dogecoin, which collectively bring in the equivalent of about .02 bitcoin a month, or $426.
It’s a similar story for Salah Al Zaatare, an architect living 20 minutes south of El Hajj in the coastal city of Sidon. Al Zaatare tells CNBC that he began mining dogecoin and litecoin in March of this year to augment his income. He now has 10 machines that he keeps with Abu Daher. Al Zaatare’s machines are newer models so he pulls in more than El Hajj — about $8,500 a month.
Al Zaatare pulled all of his money out of the bank before the crisis hit in 2019, and he held onto that cash until deciding to invest his life savings into mining equipment last year.
“I got into it, because I think it will become a good investment for the future,” Al Zaatare told CNBC.
Official government data shows that just 3% of those earning a living in Lebanon are paid in a foreign currency such as the U.S. dollar, so mining offers a rare opportunity to get ahold of fresh dollars.
“If you can get the machine, and you get the power, you get the money,” said Nicholas Shafer, a University of Oxford academic studying Lebanon’s crypto mining industry.
Abu Daher, who graduated from the American University of Beirut six months ago, has also been experimenting with other ways to get more use out of crypto mining. As part of his year-end project at university, he designed a system to harness the heat from the miners as a means to keep homes and hospitals warm during the winter months.
But mining crypto tokens to earn a living is not for everybody.
Gebrael considered it, but ultimately, the cost of buying gear, plus paying for electricity, cooling, and maintenance seemed like a roundabout way of getting what he wanted.
“It’s easier to just buy bitcoin,” he said.
Tether as currency
When Gebrael needs cash to pay for groceries and other basics, he first uses a service called FixedFloat to swap some of the bitcoin he has earned through his freelance work for tether (also known as USDT), a stablecoin that is pegged to the U.S. dollar. After that, he goes to one of two Telegram groups to arrange a trade of tether for U.S. dollars. While tether does not offer the same potential for appreciation as other cryptocurrencies, it represents something more important: a currency that Lebanese still trust.
Each week, Gebrael finds someone willing to make the swap, and they set up an in-person meeting. Because he is often making the trade with a stranger, Gebrael typically chooses public spaces, like a coffee shop, or the ground floor of a residential building.
“One time I was scared because it was at night and the person I contacted asked me to go up to their apartment,” Gebrael said of one hand-off. “I asked them to come meet me on the street, and it all went fine. I try to stay as safe as possible.”
These kinds of backchannels have become a critical lifeline to fresh dollars, which are vital in Lebanon’s mostly-cash economy.
“It’s easy here to get cash from crypto,” said El Hajj of his experience. “There’s a lot of guys that exchange USDT for cash.”
Exchanges over the Telegram group that Gebrael uses range from $30 to trades in the hundreds of thousands of dollars.
In addition to Telegram, a network of over-the-counter traders specialize in swapping several different types of fiat currencies for cryptocurrencies. The model bears resemblance to the centuries-old hawala system – which facilitates cross-border transactions via a sophisticated network of money exchangers and personal contacts.
Abu Daher offers exchange services in tandem with his mining business, and charges a 1% commission fee to both of the parties participating in the trade.
“We started by selling and buying USDT because the amount of demand on USDT is very high,” said Abu Daher, who added that he was “shocked” at the flood of inbounds for his service.
Some people are tinkering with covering their daily expenses in tether directly to avoid either paying commissions to crypto exchangers — or having to go through the motions of setting up an informal trade with a stranger.
Even though accepting crypto as a payment method is prohibited under Lebanese law, businesses are actively advertising that they accept crypto payments on Instagram and other social media platforms.
“The use of USDT is widespread. There’s a lot of coffee shops, restaurants, and electronics stores that accept USDT as a payment, so that’s convenient if I need to spend not in fiat, but from my bitcoin savings,” explained Gebrael. “The government has much bigger problems right now than to worry about some stores accepting cryptocurrency.”
Local businesses in the Chouf region have also begun to accept crypto payments amid the rise of mining farms, according to El Chamaa. In Sidon, the 26-year-old owner of a restaurant called Jawad Snack says that around 30% of his transactions are in crypto, according to written comments translated by Abu Daher and shared with CNBC via WhatsApp.
“It’s better for me to accept tether or U.S. dollars due to the huge inflation in the Lebanese lira,” continued the owner, who added that once he is paid in tether, he cashes it out to fiat through a trader in the black market. He says he typically uses Abu Daher for this, since he lives the closest.
Abu Daher uses tether to pay for imported machines, but he still has to cover a lot of his expenses in the Lebanese lira (electricity, internet fees, and rent), as well as in U.S. dollars (cooling systems and security systems).
Some hotels and tourism agencies accept tether, as does at least one auto mechanic living in Sidon.
Indeed, new research from blockchain data firm Chainalysis shows that Lebanon’s crypto transaction volume is up about 120%, year-over-year, and it ranks second only to Turkey in terms of the volume of cryptocurrency received among countries in the Middle East and North Africa. (Globally, it’s in 56th place in peer-to-peer trading volume.)
Access to a smartphone is critical, too. Although official statistics show that internet penetration in Lebanon is around 80%, the country’s debilitating power cuts disrupt internet service. But the country’s telecom networks operate their own power generators to keep running continuously.
“We are putting our money in our phones. That is the easiest way,” said Abu Daher.
Bitcoin as a bank
In 2017, Marcel Younes was working as a marketing manager with Pfizer in Beirut when he tried to get rich by getting into bitcoin.
A pharmacist by training, Younes soon strayed from tracking price charts and instead became engrossed by the economic theory underpinning digital currencies like bitcoin.
As he continued his studies, he noticed a lot of similarities between Lebanon, Venezuela, and Argentina.
“I panicked and withdrew all my money from the bank,” said Younes, who added that he emptied his account in mid-2019 — just a couple months before banks locked people out of their accounts. “I was paranoid thanks to bitcoin.”
Younes tells CNBC that he initially moved 15% of his money into bitcoin, and he kept the remaining balance in cash. Today, 70% of his cash is in bitcoin.
“I was actually telling everyone to do the same in my family, like, please try to withdraw some money, and don’t keep it in the bank,” said Younes.
“But no one really believes a pharmacist — a person who is not related to our banking system,” said Younes.
Younes, who was born in Poland but moved to Lebanon with his family in 1998, tells CNBC that most of his family works in the banking system in Lebanon.
“They always believe that everything is fine with the banking system, so you get this confidence that everything is alright,” he said.
Within months, his family was wiped out.
His father-in-law, who is 75 years old and retired years ago, had safeguarded his entire net worth in the bank.
“My family, like every single family member in Lebanon, got really hurt by the whole devaluation and currency crisis,” said Younes.
A by-product of the spiraling currency has been the erosion of earning power.
“My aunt, for example, she’s a teacher. Right now, her salary is $50 per month. My father, who’s a doctor with over 30 years of experience, his salary is around $500 a month,” explained Younes. “It happened gradually, because every few months, we have a small devaluation, and it all culminated in a 95% devaluation of the Lebanese lira.”
Younes has since founded Bitcoin du Liban (a play on the name of Lebanon’s central bank, Banque du Liban), a group with a mission to help close the knowledge gap on bitcoin in Lebanon through in-person meetings, online tutorials, and chats via the organization’s Telegram group.
Multiple sources tell CNBC that people across the country are afraid to put their money in the banks or store it in cash at home because of the risk of theft. Alex Gladstein, chief strategy officer for the Human Rights Foundation, says these kinds of situations are one clear value proposition for bitcoin.
In bitcoin, one of the mantras is — “not your keys, not your coins” — meaning that rightful ownership of tokens comes through the custody of the passwords that enable the crypto to be moved out of the wallet.
“If you had your money in the bank in Lebanon, it’s all gone. Who knows how much of it you will ever see again. Meanwhile, bitcoin rises and falls in the global market, but if you self-custody your bitcoin, you always have it as an asset, and you can use it as you see fit and send it anywhere in the world,” explained Gladstein. “It has superpowers compared to fiat currency.”
There are a lot of ways to store crypto coins. Online exchanges like Coinbase, Binance, and PayPal will custody tokens for users. Abu Daher, for example, keeps 100% of his cash in online crypto wallets on Binance and KuCoin, as does Al Zaatare, who says that he saves his bitcoin on Binance.
More tech-savvy users sometimes cut out the middleman and hold their crypto cash on personally owned hardware wallets. Gebrael, for example, prefers the autonomy and security that he derives from self-custody of his bitcoin. He tells CNBC that he keeps all of his bitcoin in cold storage on a thumb drive-sized device called a Trezor hardware wallet.
Beyond the added security of holding his own keys and disconnecting his wallet from the internet, Gebrael says the appeal of cold storage has a lot to do with the fact that he doesn’t have to connect his personal identity to his bitcoin. He added that the anonymity offered by self-custody helps protect him from being caught in the crosshairs of government-issued sanctions. Gebrael cited the example of the Canadian government blacklisting all crypto exchange wallets connected to the truckers participating in the ‘Freedom Convoy’ protests.
Gebrael says he also doesn’t like the user experience of centralized digital asset exchanges like Binance and Coinbase “with all their flashy charts.”
“It’s like one huge casino, and they want you to gamble your money,” said Gebrael.
Lebanon has six bitcoin ATMs — one in Aamchit and five in Beirut, according to metrics offered by coinatmradar.com. But those who spoke with CNBC for this story say that the optimal on-ramps to accessing bitcoin are either earning it (through mining or paid work), or buying it with tether.
When asked how reliable it is to safeguard wealth in an inherently volatile asset like bitcoin — which is down more than 70% in the last year — Younes says that “it’s a matter of perception.”
“If you go back to two, three years ago, it was $3,500,” said Younes, who added that he isn’t really concerned about the price of bitcoin.
When Younes first bought bitcoin, it was trading at about $20,000, so as of today, he tells CNBC that he hasn’t made any money. But investing his cash into the world’s largest cryptocurrency also has to do with the fact that he wants to bet on a new monetary system.
“Bitcoin offers a system that is uncorruptible; a system that is basically permissionless and censorship-resistant,” he said. “No one can really devalue bitcoin due to its monetary policy, which is 21 million bitcoin.”
Ultimately, money is a human belief system. For some in Lebanon, it has been a lifeline, for others, it’s a passing fad.
El Chamaa hasn’t turned to crypto, and he stands by the decision, even after spending time reporting on the ground at Abu Daher’s crypto mines.
“If you look at what bitcoin and ethereum are worth today, I mean, it’s worth a fraction of what it was a year ago. So I’m kind of glad I didn’t get into it,” said El Chamaa.
“Warren Buffett is basically saying that it doesn’t have an intrinsic value and just passing it on to the next person and helping to make a profit off of that doesn’t make any sense. So I’m a bit skeptical,” he said.