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Lebanese people prefer crypto in economic uncertainty

When Lebanese first heard about bitcoin, years ago, many thought it was a hoax.  By 2019, however, as Lebanon faced a financial crisis as a result of decades of costly wars and poor spending decisions, a decentralized and borderless digital currency operating outside the reach of bankers and politicians sounded like salvation.

“Not everyone believes the banks are bankrupt, but the reality is that they are,” said Ray Hindi, CEO of a Zurich-based digital asset management firm.

“The situation hasn’t changed much since 2019.” Banks restricted withdrawals, and deposits became IOUs. “You could have taken out your money with a 15% haircut, then 35%, and now we’re at 85%,” Hindi, who was born and raised in Lebanon before leaving at the age of 19, explained. “People still look at their bank statements and believe they’ll be made whole at some point,” he said.

Most people have lost faith in the monetary system and have instead turned to cryptocurrency. Some people mine for digital tokens as their sole source of income while looking for work. Others organize secret Telegram meetings to exchange the stablecoin tether for US dollars in order to buy groceries. Although the form that crypto adoption takes varies depending on the person and the circumstances, nearly all of these locals desired a meaningful connection to money.

“Bitcoin has given us hope,” one villager said. “I was born in my village and have lived here my entire life, and bitcoin has enabled me to do so.”

Paris of the Middle East

Between the end of WWII and the beginning of Lebanon’s civil war in 1975, Beirut was in its golden age, earning it the moniker “Paris of the Middle East.” The world’s elite flocked to the Lebanese capital, which boasted a sizable Francophone population, Mediterranean seaside cafes, and a banking sector known for its resilience and emphasis on secrecy.


ven after the brutal 15-year civil war ended in 1990, Lebanon competed with offshore banking jurisdictions such as Switzerland and the Cayman Islands as a prime location for the wealthy to stash their money. According to one estimate shared by Dan Azzi, an economist and former CEO of Standard Chartered Bank’s Lebanese subsidiary, Lebanese banks provided both anonymity and interest rates ranging from 15% to 31% on US dollars. In exchange, Lebanon received foreign currency, which it desperately needed to replenish its coffers following the civil war.

There were conditions attached. Some banks, for example, had a three-year lock-up period and strict minimum balance requirements. However, for a time, the system worked fairly well for everyone involved. The banks received an influx of cash, depositors’ balances quickly increased, and the government went on an uncontrolled spending spree with the money it borrowed from the banks. The government’s use of borrowed funds to maintain a fixed exchange rate for deposit inflows at an overvalued peg added to the illusion of easy money.

Tourism, international aid, and foreign direct investment from oil-rich Gulf states all helped to shore up the central bank’s balance sheet, according to the Banque du Liban. The country’s brain drain, as well as the subsequent surge in remittance payments sent home by the Lebanese diaspora, injected additional dollars.

According to World Bank data, remittances as a percentage of GDP peaked at more than 26% in 2004, but remained high throughout the 2008 global financial crisis. Those payments, however, began to slow in the 2010s due to regional unrest, and the growing prominence of Hezbollah in Lebanon – an Iranian-backed Shiite political party and militant group – alienated some of the country’s biggest donors.

Meanwhile, as the government splurged to try to rebuild after the civil war, the government’s budget deficit widened, and imports have long outstripped exports.

A dangerous policy

To avert a total economic meltdown, Riad Salameh, an ex-Merrill Lynch banker who had been in charge since the early 1990s, decided to increase banking incentives in 2016. People who deposited US dollars earned astronomical interest, which was especially appealing at a time when returns elsewhere in the world were relatively low. According to El Chamaa, those who deposited US dollars and then converted them to Lebanese lira earned the highest interest.

The era of easy money ended in October 2019, when the government proposed a slew of new taxes on everything from gasoline to tobacco to WhatsApp calls. In what became known as the October 17 Revolution, people took to the streets.

As a result of the popular uprising, the government defaulted on its sovereign debt for the first time ever in early 2020, just as the Covid pandemic spread around the world. Making matters worse, an explosion at a stockpile of ammonium nitrate stored at Beirut’s port in August 2020, blamed on gross government negligence, killed more than 200 people and cost the city billions of dollars in damages.

Fearful of the chaos, banks limited withdrawals and then closed their doors entirely as much of the world went into lockdown. Hyperinflation set in. The local currency, which had been pegged to the US dollar for 25 years, began to depreciate rapidly. The current street rate is around 40,000 pounds to one dollar. “You need a backpack to go out to lunch with a group of people,” Hindi explained.

When the banks reopened, they refused to keep up with the extreme depreciation and offered much lower exchange rates for US dollars than they were worth on the open market. As a result, money in the bank became much less valuable.

Azzi dubbed this new currency “lollars,” referring to US dollars deposited in Lebanon’s banking system prior to 2019. According to estimates from multiple locals and experts living across Lebanon, lollar withdrawals are now capped, and each lollar is paid out at a rate worth about 15% of its actual value. Meanwhile, banks continue to offer the full market rate for US dollars deposited after 2019. These are now colloquially known as “fresh dollars.”

Money simply stopped making sense for many Lebanese at this point.

“I send actual dollars from my Swiss dollar account to my father’s Lebanese account,” Hindi said. “They count as new dollars because they came from abroad, but my father is exposed to counterparty risk with the bank.”

Bank robberies, in which locals force money from their personal accounts, have become the new norm. Some have used a toy gun and a hunting rifle, while others have taken hostages in order to gain access to their savings in order to pay hospital bills. A former Lebanese ambassador and a member of the Lebanese Parliament were among those who attacked her and demanded her frozen savings for medical expenses.

According to the World Bank, Lebanon’s economic and financial crisis is among the worst seen anywhere in the world since the 1850s. According to the United Nations, 78% of Lebanon’s population has now fallen below the poverty line.

Goldman Sachs analysts estimate local bank losses of $65 billion to $70 billion, which is four times the country’s total GDP. Fitch expects inflation to reach 178% this year, worse than in Venezuela and Zimbabwe, and the government’s top brass is split on whether the country is officially bankrupt.

The International Monetary Fund is negotiating with Lebanon to apply a large bandage to the entire mess. The global lender is considering extending a $3 billion lifeline, but only under strict conditions. Meanwhile, Parliament continues to try and fail to elect a president, creating a power vacuum.


Ahmad Abu Daher and a friend began mining ether with three machines powered by hydroelectric power in Zaarouriyeh, a town in the Chouf Mountains 30 miles south of Beirut.

At the time, ethereum — the blockchain that underpins the ether token — was based on a proof-of-work model, in which miners around the world would run high-powered computers that crunched math equations to validate transactions while also creating new tokens. This is still how the bitcoin network is protected today.

The procedure necessitates costly equipment, technical know-how, and a lot of electricity. Because scale miners compete in a low-margin industry where the only variable cost is energy, they are compelled to migrate to the world’s cheapest power sources.

Abu Daher participates in a hydropower project that generates electricity from the 90-mile Litani River that runs through southern Lebanon. He claims to be getting 20 hours of electricity per day at pre-inflationary rates.

“Basically, we’re paying very low electricity rates and earning new dollars through mining,” Abu Daher explained.

When Abu Daher, 22, realized his mining venture was profitable, he and a friend expanded the operation.
They established their own farm using rigs purchased at bargain prices from Chinese miners and began reselling and repairing mining equipment for others. They also began to host rigs for people living throughout Lebanon who needed stable money but lacked technical expertise, as well as access to cheap and consistent electricity — a highly sought-after commodity in a country plagued by crippling power outages. Outside of Lebanon, Abu Daher has customers in Syria, Turkey, France, and the United Kingdom.

According to Abu Daher, it has been 26 months since they first opened their doors, and business is thriving. He claims to have made $20,000 in profits in September, half of which came from mining and the other half from selling machines and trading in cryptocurrency.

Due to electrical shortages, the government is attempting to crack down.

Police raided a small crypto mining farm in the hydro-powered town of Jezzine in January, seizing and dismantling mining rigs. The Litani River Authority, which oversees the country’s hydroelectric sites, reportedly stated shortly after that “energy intensive cryptomining” was “straining its resources and draining electricity.”

But Abu Daher claims he is not concerned about being raided or the government’s proposal to raise electricity prices.

“We had some meetings with the police, and we don’t have any problems with them because we’re using legal electricity and not interfering with the infrastructure,” he explained.

While Abu Daher claims to have installed a meter that officially tracks how much energy his machines have consumed, other miners are said to have illegally connected their rigs to the grid and are not paying for power.
“Basically, a lot of other people are having problems because they aren’t paying for electricity, and it’s affecting the infrastructure,” he explained.

Rawad El Hajj, a 27-year-old marketing graduate, learned about Abu Daher’s mining operation from his brother three years ago.

“We started because there isn’t enough work in Lebanon,” El Hajj explained, explaining his motivation for venturing into mining. El Hajj, who lives south of the capital in the city of Barja, started small, buying two miners to get started. “Then we started going bigger and bigger every month” he said.

Due to the distance between Abu Daher’s farms, El Hajj pays to outsource the hosting and maintenance of the rigs. According to CNBC, his 11 machines mine for litecoin and dogecoin, bringing in the equivalent of about.02 bitcoin per month, or $426.

Salah Al Zaatare, an architect living 20 minutes south of El Hajj in the coastal city of Sidon, has a similar story. According to Al Zaatare, he began mining dogecoin and litecoin in March of this year to supplement his income. He now maintains ten machines with Abu Daher. Because Al Zaatare’s machines are newer, he earns more than El Hajj — around $8,500 per month.

Al Zaatare withdrew all of his money from the bank before the 2019 crisis, and he held onto it until last year, when he decided to invest his life savings in mining equipment. “I got into it because I believe it will be a good long-term investment,” Al Zaatare said.

According to official government data, only 3% of those earning a living in Lebanon are paid in a foreign currency such as the US dollar, so mining provides a rare opportunity to obtain fresh dollars.
“If you can get the machine and the power, you can get the money,” said Nicholas Shafer, an Oxford University academic researching Lebanon’s crypto mining industry.

Abu Daher, who graduated from the American University of Beirut six months ago, has also been experimenting with other methods to make more use of cryptocurrency mining. He designed a system to harness the heat from the miners as a means of keeping homes and hospitals warm during the winter months as part of his year-end project at university.

However, mining crypto tokens for a living is not for everyone. Many people considered it, but the cost of purchasing equipment, as well as paying for electricity, cooling, and maintenance are often a big hurdle, so they prefer to simply hold onto bitcoin.


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