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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
MacKenzie Sigalos
@KENZIESIGALOS
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.”………………………………………………………..
Mine-to-earn
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.
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