When Georgio Abu Gebrael first heard about bitcoin in 2016, it sounded like a scam.
But in 2019, when Lebanon plunged into a financial crisis after decades of costly wars and poor spending decisions, a decentralized virtual currency that operated beyond the success of bankers and politicians seemed like a salvation.
Gebrael was an architect living in his hometown of Beit Mery, a village 11 miles east of Beirut. He had lost his homework and needed to find another way to get cash quickly. In the spring of 2020, Gebrael says, banks were closed and citizens were not allowed to withdraw cash from their accounts. Receiving cash through a foreign bank wasn’t a smart choice either, as they would take U. S. dollars from the sender and give Lebanese pounds to the recipient at a rate well below market value, according to the 27-year-old.
“I would lose a part of the value,” Gebrael said of the experience. “That’s why I look for bitcoin: it’s a smart way to get cash from abroad. “
Gebrael discovered a subreddit committed to connecting freelancers with employers willing to pay in bitcoin. The architect’s first task was to shoot a short advertisement for a company that sold tires. Gebrael paid $5 in bitcoins. Despite the small amount, he became addicted.
Today, part of Gebrael’s source of income comes from self-employment, 90% of which is paid in bitcoin. The other part comes from a salary denominated in US dollars paid through his new architecture firm. Beyond being a convenient way to make a living, bitcoin also has its bank.
“When I get paid for my paintings as an architect, I withdraw all my cash,” Gebrael continued. He then uses that cash to buy small amounts of bitcoins every Saturday. The rest helps you save as pocket cash for daily desires. and housing reforms.
Gebrael is not alone in other tactics to earn, save and spend cash in Lebanon, a country whose banking formula is fundamentally failing after decades of mismanagement. The local currency has lost more than 95% of its price since August 2019, the minimum wage has dropped from $450 to $17 per month, pensions are virtually useless, Lebanon’s triple-digit inflation rate is expected to be momentary only for Sudan this year, and bank account balances are simply compatible with numbers.
“Not everyone thinks banks are bankrupt, but they are,” said Ray Hindi, chief executive of a Zurich-based control firm committed to virtual assets.
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“The scenario has not changed since 2019. Banks have limited withdrawals and those deposits have been converted into promissory notes. You may have withdrawn your cash at a 15% discount, then 35% and today we are at 85%,” Hindi said. , who was born and raised in Lebanon before leaving at the age of 19.
“However, other people look at their bank statements and they’re going to be consistent at some point,” he said.
Although they have lost almost all of their savings and pensions, Gebrael’s parents, who are career civil servants, hope that the current monetary formula will do so at some point. Meanwhile, Gebrael covers the difference.
Others have lost confidence in the financial system. Enter the cryptocurrency.
CNBC spoke to several locals, many of whom see cryptocurrencies as a lifeline for their survival. Some are mining virtual tokens as their only source of income while looking for work. Others hold clandestine meetings via Telegram to exchange the stablecoin for U. S. dollars to buy groceries. While the form cryptocurrency adoption takes varies by user and circumstances, almost all of those locals craved a connection with cash that made sense.
“Bitcoin has given us hope,” Gebrael said. I was born in my village, I have lived here all my life and Bitcoin has helped me stay here. “
Between the end of World War II and the beginning of the civil war in Lebanon in 1975, Beirut lived its golden age, which earned it the name “Paris of the Middle East”. Global elites flocked to the Lebanese capital, which had a giant French-speaking population, Mediterranean beach cafes and a banking sector known for its resilience and emphasis on secrecy.
Even after the brutal end of the 15-year civil war in 1990, Lebanon competed with offshore banking jurisdictions such as Switzerland and the Cayman Islands as an ideal destination for the wealthy to deposit their money. Lebanese banks had a degree of anonymity and interest rates ranging from 15% to 31% on the U. S. dollar, according to an estimate shared through Dan Azzi, an economist and former chief executive of Standard Chartered Bank’s Lebanese subsidiary. In return, Lebanon turned to the foreign currency it desperately needed to fill its coffers after the civil war.
There were ropes tied. Some banks, for example, had a three-year lock-in window and higher minimum balance requirements. But for a while, the formula worked pretty well for everyone involved. The banks gained an inflow of cash, depositors saw their balances quickly, and the government went about spending uncontrollably the cash it borrowed from the banks. The simple cash mirage has been reinforced by the fact that the government has devoted some of this borrowed cash to maintaining a constant exchange rate for deposit inflows to an overvalued peg.
Tourism and foreign aid, as well as foreign direct investment from oil-rich Gulf states, have also been instrumental in strengthening the balance sheet of the central bank, the Bank of Lebanon. The country’s brain drain and the upcoming boom in remittances sent through the Lebanese diaspora have also injected dollars.
World Bank knowledge shows that remittances as a consistent percentage of gross domestic product peaked at more than 26% in 2004, although they remained at the height of the 2008 global currency crisis. However, those payments began to decline in the 2010s amid unrest across the region. and the growing importance of Hezbollah, an Iranian-backed Shiite political party and militant organization, in Lebanon alienated some of the country’s biggest donors.
Meanwhile, as the government squandered on reconstruction after the civil war, the government’s budget deficit plunged further into the red and its imports exceeded its exports for years.
In a bid to avoid a general economic collapse, in 2016 central bank leader Riad Salameh, a former Merrill Lynch banker in the workplace since the early 1990s, created banking incentives. People willing to deposit US dollars earned astronomical interest on their money, which proved attractive at a time when returns in other parts of the world were relatively disappointing. Chamaa tells CNBC that those who deposited U. S. dollars and then exchanged those dollars into Lebanese lira got the highest interest.
The era of simple cash fell off a cliff in October 2019, when the government proposed a wave of taxes on everything from gasoline to tobacco to WhatsApp calls. People took to the streets in what is known as the October 17 Revolution.
As the masses rebelled, the government defaulted on its sovereign debt for the first time in early 2020, just as the Covid pandemic gripped the entire world. To make matters worse, in August 2020, the explosion of a stockpile of ammonium nitrate stored in Beirut’s port, attributed to gross negligence on the part of the government, killed more than two hundred more people and charged the city billions of dollars in damages.
Banks, spooked by all the chaos, first limited withdrawals and then closed their doors absolutely as much of the world closed. Hyperinflation has taken root. The local currency, which had been pegged from 1,500 Lebanese pounds to $1 for 25 years, began to depreciate rapidly. The street fare now hovers around $40,000 for $1.
“You want a backpack to go to lunch with an organization of people,” Hindi explained.
After the reopening, banks refused to stick to this excessive depreciation and presented US dollar exchange rates well below their value on the open market. Therefore, cash in the bank is suddenly worth much less.
Azzi dubbed this new form of currency “lollars,” referring to U. S. dollars deposited in the Lebanese banking formula before 2019. several citizens and experts living throughout Lebanon.
Meanwhile, banks will continue to offer the full market exchange rate for U. S. dollars deposited after 2019. These are now known as “fresh dollars. “
For many Lebanese, that’s when cash stopped making sense.
“I send genuine dollars from my dollar account in Switzerland to my father’s Lebanese account,” Hindi told CNBC. “They count as new dollars because they come from abroad, but of course my father has a counterpart with the bank. “
Mohamad El Chamaa, a 27-year-old Orient Today journalist from Beirut, told CNBC that when the bank began implementing the restrictions, he had $3,000 in his savings account from the work he did at doctoral school.
“One of the regrets of my life was not taking out all my cash before the crisis erupted,” said El Chamaa, who is studying for a master’s degree in urban planning at the American University of Beirut. written on the wall, because the bank started charging me a small percentage for every dollar withdrawal I made a month before the crisis hit, which was strange to me. “
El Chamaa says he has since become accustomed to taking flying coins out of his bank account at a “bad rate” of 10% to 15% of their original value, but “no way” that one day he will deposit coins in a Lebanese bank ever again. Instead, it helps keep what’s left of your coin savings and only uses your bank account to pay for your iCloud service and music streaming account.
Access to your account is uneven. Banks closed in September and there are forced blackouts across the country, resulting in limited access to ATMs.
Bank robberies in which citizens forcibly ask for cash from their nonpublic accounts are the new normal. Some brandished a pistol and a toy shotgun, while others took hostages in an attempt to make their savings pay hospital bills. The attackers come with a member of the Lebanese parliament who called for a freeze on his medical expenses savings and a former Lebanese ambassador.
“It’s getting worse over time, but the basics have been bad since 2019. They haven’t replaced much,” Hindi said.
The World Bank says Lebanon’s economic and monetary crisis is one of the worst on the planet since the 1850s. The United Nations estimates that 78 per cent of Lebanon’s population is now below the poverty line.
Goldman Sachs analysts estimate that local banks’ losses range from $65 billion to $70 billion, or 4 times the country’s overall GDP. Fitch predicts inflation will succeed at 178% this year, worse than in Venezuela and Zimbabwe, and there are mixed messages from the government’s sensible brass majority as to whether the country is officially bankrupt.
The International Monetary Fund is in talks with Lebanon to put a Band-Aid in total disarray. The global lender plans to make a $3 billion lifeline bigger, with many conditions. Meanwhile, there is a vacuum of strength as Parliament continues to review and fail to elect a president.
Just over two years ago, Ahmad Abu Daher and his friend started extracting ether with 3 hydroelectric machines in Zaarouriyeh, a town 30 miles south of Beirut in the Chouf Mountains.
At the time, ethereum, the blockchain underlying the ether token, operated on a proof-of-work model, in which miners around the world ran high-powered computers that overwrote mathematical equations to validate transactions and create new tokens. This is how the bitcoin network remains secure today.
The procedure requires expensive equipment, some technical knowledge and a lot of electricity. Because large-scale miners compete in a low-margin industry, where their variable charge is energy, they are forced to migrate to the world’s cheapest energy resources. the world.
Abu Daher operates a hydroelectric assignment that harnesses the electrical power of the 90-mile Litani River that runs through southern Lebanon. He says he gets 20 hours of electricity a day at pre-inflation rates.
“So basically we’re paying for very reasonable electricity and we’re getting new dollars from mining,” Abu Daher continued.
When Abu Daher, 22, saw that his mining business was profitable, he and his friend expanded the operation.
They built their own farm with rigs purchased at reduced prices from miners in China and began reselling and repairing mining equipment for others. Access to reasonable and solid electric power, a highly coveted commodity in a country with crippling blackouts. Abu Daher also has customers outside Lebanon, Syria, Turkey, France and the UK.
It’s been 26 months since they first moved in and business is booming, according to Abu Daher. He says he made $20,000 in profits in September, part from mining, the other part from machinery promotion and crypto trading.
The government, faced with the shortage of electricity, is going to take strong measures.
In January, police raided a small crypto mining farm at the Jezzine City hydroelectric plant, seizing and dismantling mining rigs in the process. Soon after, the Litani River Authority, which oversees the country’s hydroelectric sites, allegedly said cryptomining “straining its resources and depleting electricity. “
But Abu Daher told CNBC he wasn’t worried about being raided, nor about the government’s proposal to increase the value of electricity.
“We’ve had some meetings with the police and we don’t have any mess with them, because we take legal electricity and we don’t do the infrastructure,” he said.
While Abu Daher says he installed a meter that officially tracks the amount of energy powered through his machines, other miners are reported to have illegally connected their rigs to the grid and pay for electricity.
“Basically, a lot of other people have disruption because they don’t pay for electricity and infrastructure,” he said.
Rawad El Hajj, 27, a marketing graduate, learned about Abu Daher’s mining operation 3 years ago from his brother.
“We because there are not enough paintings in Lebanon,” El Hajj said of his motivation to move into mining.
El Hajj, who lives south of the capital in a small town called Barja, bought two miners to start.
“Then every month we start growing bigger and bigger,” El Hajj told CNBC.
Due to the distance from Abu Daher’s farms, El Hajj will pay to outsource hosting and maintenance work on the platforms. He tells CNBC that his 11 machines mine Litecoin and Dogecoin, which together contribute around 0. 02 bitcoins per month. or $426.
It’s a similar story for Salah Al Zaatare, an architect who lives 20 minutes south of El Hajj in the coastal city of Sidon. Al Zaatare told CNBC that it began mining dogecoin and litecoin in March this year to increase its revenue. He now has 10 machines that he helps according to Abu Daher. Al Zaatare machines are newer models, so he earns more than El Hajj – about $8,500 per month.
Al Zaatare withdrew all his cash from the bank before the crisis erupted in 2019, and kept that cash until he invested his savings in mining apparatus last year.
“I came in because I think it will be a smart investment for the future,” Al Zaatare told CNBC.
Official government knowledge shows that only 3% of those who make a living in Lebanon receive their payment in a foreign currency such as the US dollar, so mining provides a rare opportunity to obtain new dollars.
“If you can get the device and you get the power, you get the money,” said Nicholas Shafer, a Lebanese crypto mining industry educator at Oxford University.
Abu Daher, who graduated from the American University of Beirut six months ago, also experimented with other tactics to make greater use of cryptocurrency mining. As part of his end-of-year assignment at university, he designed a formula to take advantage of the warmth of miners to stay in homes and hospitals to warm up the winter months.
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Gebrael came up with the idea, but in the end, the charge of buying the equipment as well as paying for electricity, cooling and maintenance as an indirect way to get what he wanted.
“It’s just to buy bitcoins,” he said.
When Gebrael wants cash to pay for groceries and other commodities, he first uses a service called FixedFloat to exchange some of the bitcoins he earned through his freelance jobs for tether (also known as USDT), a stablecoin pegged to the U. S. dollar. After that, you will go to one of the two Telegram teams to set up a tie exchange for US dollars. Although Tether offers the same perspective of appreciation as other cryptocurrencies, it represents something more important: a currency that the Lebanese still rely on. .
Every week, Gebrael finds someone willing to do the exchange and they arrange an in-person meeting. Because he does business with a stranger, Gebrael regularly chooses public spaces, such as a coffee shop or the ground floor of a residential building.
“Once I got scared because it was night and the user I contacted asked me to come to his apartment,” Gebrael said of a transfer. stay as long as possible. “
These types of return channels have an indispensable lifeline for new dollars, which are important in Lebanon’s predominantly financial economy.
“Here it is simple to get cash through crypto,” El Hajj said of his experience. “There are many people who exchange USDT for cash. “
Exchanges in the Telegram organization that Gebrael uses range from $30 to transactions of thousands of dollars.
In addition to Telegram, an over-the-counter trading network specializes in exchanging various types of fiat currencies for cryptocurrencies. The style resembles the centuries-old hawala formula, which facilitates cross-border transactions through a complicated network of cash changers and non-public contacts. .
Abu Daher offers exchange together with its mining company and charges a 1% commission to any of the parties participating in the exchange.
“We started selling and buying USDT because the number of calls in USDT is very high,” Abu Daher said, adding that he was “surprised” by the flood of tickets for his service.
Some other people try to cover their day-to-day expenses directly to pay commissions to crypto exchanges, or have to go through setting up an informal industry with a stranger.
Although Lebanese law prohibits accepting cryptocurrencies as a payment method, businesses actively advertise that they accept cryptocurrencies on Instagram and other social media platforms.
“The use of USDT is widespread. There are many coffee shops, restaurants and retail outlets of electronic products that accept USDT as a form of payment, so it is convenient if I want to spend not on fiat money, but with my savings in bitcoins,” Gebrael said. explained. ” The government has much bigger messes right now than being concerned about some retail outlets that settle for cryptocurrency. “
Local businesses in the Chouf region have also started accepting crypto banknotes amid the boom in mining farms, according to El Chamaa. In Sidon, the 26-year-old owner of a restaurant called Jawad Snack claims that around 30% of his transactions are in crypto, according to written comments translated through Abu Daher and shared with CNBC WhatsApp.
“It’s better for me to settle for tether or U. S. dollars because of the massive inflation of the Lebanese lira,” the owner continued, adding that once paid with tether, he collects it in fiat through a black market trader. He says he uses Abu Daher for this, as he lives closer.
Abu Daher uses tether to pay for imported machinery, but still has to cover much of its expenses in Lebanese pounds (electricity, prices and rent) as well as US dollars (refrigeration systems and security systems).
Some hotels and tourist agencies settle for fasteners, as does at least one auto mechanic who lives in Sidon.
In fact, new studies from blockchain knowledge firm Chainalysis show that the volume of crypto transactions in Lebanon increased by approximately 120%, year-over-year, and ranks first in Turkey in terms of the volume of cryptocurrencies earned between Middle Eastern and Northern countries. Africa. (Overall, it ranks 56th in terms of peer-to-peer trading volume. )
Access to a smartphone is also essential. Although official statistics show penetration in Lebanon at around 80%, the country’s debilitating power cuts are disrupting service. But the country’s telecommunications networks run on their own electric power turbines to continue operating continuously.
“We put our cash on our phones. This is the way,” Abu Daher said.
In 2017, Marcel Younes was running for marketing manager at Pfizer in Beirut when he tried to get rich by logging into bitcoin.
Younes, a pharmacist by training, temporarily moved away from tracking value charts and instead became absorbed in the economic theory of virtual currencies like bitcoin.
While pursuing his studies, he discovered many similarities between Lebanon, Venezuela and Argentina.
“I panicked and withdrew all my cash from the bank,” Younes said, adding that he emptied his account in mid-2019, just months before banks excluded other people from his accounts. “I’m paranoid because of bitcoin. “
Younes told CNBC that he first transferred 15% of his cash to bitcoin and kept the balance in cash. Today, 70% of its cash is in bitcoin.
“I was telling everyone to do the same in my family, like, please, pay to withdraw cash and don’t stay in the bank,” Younes said.
“But nobody believes a pharmacist, a user who is not connected to our banking system,” Younes said.
Younes, who was born in Poland but moved to Lebanon with his family in 1998, told CNBC that most of his family works in the banking formula in Lebanon.
“They keep saying everything is fine with the banking system, so you have this confidence that everything is fine,” he said.
Within months, his circle of relatives disappeared.
His father-in-law, who is 75 and retired years ago, had kept his entire network in the bank.
“My circle of relatives, like each and every member of the family circle in Lebanon, was affected by the total devaluation and currency crisis,” Younes said.
A byproduct of the financial spiral has been the erosion of power.
“My aunt, for example, is a teacher. Right now, his salary is $50 a month. My father, who is a doctor with more than 30 years of experience, his salary is about $500 a month,” Younes explained. done gradually, because every few months we have a small devaluation, and all this resulted in a 95% devaluation of the Lebanese pound. “
Younes has since founded Bitcoin of Lebanon (a play about the call of Lebanon’s central bank, the Bank of Lebanon), an organization whose project is to help close the bitcoin wisdom hole in Lebanon through face-to-face meetings, online tutorials, and chats. the organization’s Telegram organization.
Several resources tell CNBC that other people across the country are afraid to put their coins in banks or buy them as coins at home because of the threat of theft. Alex Gladstein, director of strategy at the Human Rights Foundation, says those kinds of conditions are a transparent price proposition for bitcoin.
In bitcoin, one of the mantras is: “your keys, your coins”, which means that the valid ownership of the tokens goes through the custody of the passwords that remove the cryptocurrencies from the wallet.
“If you had your cash in the bank in Lebanon, it’s all gone. Who knows how many he will see again. Meanwhile, bitcoin goes up and down in the global market, but if you hold your bitcoin yourself, you still have it as an asset, and you can use it as you need it and send it anywhere in the world,” Gladstein explained. “It has superpowers compared to fiat money. “
There are many tactics for buying cryptocurrencies. Online exchanges like Coinbase, Binance, and PayPal will remain the tokens for users. Abu Daher, for example, helps keep one hundred percent of his cash in online crypto wallets on Binance and KuCoin, as does Al Zaatare, who says he keeps his bitcoin on Binance.
More tech-savvy users cut out the middleman and keep their crypto money in non-public hardware wallets. Gebrael, for example, prefers the autonomy and security that come from the self-protection of his bitcoin. He tells CNBC that he helps keep all his bitcoins in a bloodless garage on a USB stick length device called a Trezor hardware wallet.
Beyond the added security of having your own keys and disconnecting your wallet from the internet, Gebrael says the appeal of the bloodless garage has a lot to do with the fact that you don’t have to attach your non-public identity to your bitcoin. He added that the anonymity presented through self-protection is helping him avoid getting caught in the crosshairs of sanctions imposed by the government. Gebrael cited the example of the Canadian government blacklisting all cryptocurrency exchange wallets connected to truckers in the Freedom Convoy protests.
Gebrael says he also doesn’t like the user reveling in centralized virtual asset exchanges like Binance and Coinbase “with all their eye-catching graphics. “
“It’s like a huge casino, and they allow you to play with your money,” Gebrael said.
Lebanon has six Bitcoin ATMs: one in Aamchit and five in Beirut, according to measures proposed through coinatmradar. com. But those who spoke to CNBC for this article say that the optimal ramps to accessing Bitcoin are to earn it (through mining or paid work). ) or by buying it with a leash.
When asked how reliable the wealth of an inherently volatile asset like bitcoin, which fell more than 70% last year, is, Younes replied that “it’s a matter of perception. “
“If you go back to two, 3 years later, it was $3500,” Younes said, adding that he was not involved in the value of bitcoin.
When Younes first bought bitcoin, it was trading at around $20,000, so to date, he tells CNBC he hasn’t made any cash. But making an investment of your cash in the world’s largest cryptocurrency is also related to the fact that you need to gamble. about a new financial system.
“Bitcoin provides an incorruptible system; a system necessarily without permission and resistant to censorship,” he said. “No one can devalue bitcoin because of their financial policy, which is 21 million bitcoin. “
Ultimately, it is a system of human trust. For some in Lebanon, it has been a lifesaver, for others, it is a passing fad.
El Chamaa turned to cryptocurrencies and stands by its decision, even after spending time reporting on the floor of Abu Daher’s cryptocurrency mines.
“If you take a look at the value of Bitcoin and Ethereum today, I mean, it’s worth a fraction of what it was a year ago. So I’m pretty glad I didn’t get into that,” El Chamaa said.
“Warren Buffett is saying that it doesn’t have an intrinsic price tag and that just passing it on to the next user and helping them benefit from it doesn’t make sense. So I’m a little skeptical,” he said.
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