MINING

Cryptocurrency Mining in Lebanon – Carnegie Endowment for International Peace

Lebanon is described by many to be a failed state, with a weak and paralyzed central government. Although the May 2022 elections elevated a few opposition members to parliament, 80 percent of the parliamentary seats were won by the traditional figures responsible for the Lebanese political and economic crisis. In fact, voter turnout in this election remained at around 41 percent, which reflects widespread resignation and a lack of confidence in the country’s political elites. 

One of the biggest challenges facing Lebanon today is the collapse of its banking sector. The World Bank has described the depreciation of the Lebanese Lira and the overall economic situation as perhaps the third worst economic collapse since the 19th century, and this has led to all-time lows of depreciation in the value of the lira since 2019. Value remains volatile, and every day is a struggle for Lebanese citizens to access their money and purchase basic goods such as food and fuel that have become even more scarce following COVID-19 supply chain disruptions, the war in Ukraine, and the 2020 Beirut explosion. 

In this context, the decentralized, private nature of cryptocurrencies is incredibly attractive. They exist outside of the formal financial system and thrive on the black market which defines contemporary Lebanon, where dollar and lira are exchanged daily at a market-set rate and banking institutions have zero-to-no oversight. In upscale districts of Beirut, over-the-counter traders serve as an extension of informal money changing systems—commonly referred to as Hawala networks—that can accept cash and convert that into a cryptocurrency held within a digital wallet, and vice-versa. Individuals can even find two physical Bitcoin ATMs located in Al-Hamra to convert cash into bitcoin, although this goes only one way—these ATMs cannot be used to withdrawal physical cash, limiting their overall relevance to the average Lebanese who must either possess the technical knowledge to trade themselves or rely on personalized exchange networks. Buying and selling USD Tether for dollar simply requires downloading a mobile application and entering contact information for someone to facilitate the exchange. 

This is not a phenomenon unique to Lebanon, as people all over the world have turned to crypto at points of hyperinflation, including in Venezuela. However, Lebanon has witnessed the emergence of a parallel industry of small-scale crypto mining operations in pockets where renewable energy makes it affordable. This includes villages supplied by hydroelectric power in the Chouf Mountains or solar panels near Baalbek, as the mismanagement of the electricity grids in Lebanon makes running generators for crypto mining largely unprofitable anywhere else in the country. 

Many cryptocurrencies rely on a proof of work protocol to reduce supply and incentivize support of the blockchain network, which means that there is an intensely physical process that converts inputs into the thing of perceived value. Mining requires several key inputs into the process including energy price, how the energy is generated, temperature, legal constraints, and human capital. In the case of Lebanon, while cryptocurrencies are illegal to trade in formally, there is no enforcement, and the community thrives while the state remains distracted by more pressing economic woes. 

Energy is the key reason why mining for cryptocurrency has flourished within the Chouf Mountains. Among all of Lebanon’s regions, it is the only area that has stable, 24-hour electricity provided through the legacy Litani hydroelectric system. This has made the area a center for industry of all kinds alongside crypto mining, as the rest of Lebanon suffers from frequent blackouts and relies largely on expensive and unreliable power generators to keep the lights on. 

The rise of “mining towns” in the Chouf has been driven by well-educated social innovators who seek to capitalize on the availability of cheap, stable electricity. One of the largest small-scale mining operations has been organized by Abu Daher, an innovator who grew up in the area and attended the American University in Beirut.1 His base of operations is in the Iqlim al-Kharrub area in a mixed Christian-Muslim town in the Chouf range.

After starting two years ago, his operation has grown to employ almost 40 people and have 400 investors, with a complicated network of exchanges that allows him to move significant amounts of dollar, lira, USD Tether, and other cryptocurrencies. All of his employees receive a formal salary amounting to between $800 to $4,000 per month, paid in US Dollar or USD Tether, which is significantly more than any other economic opportunity currently available in the region. Abu Daher’s blacksmith, the least well compensated of his employees, makes more than 26 times the current Lebanese minimum wage. 

Importantly, Abu Daher is from the community and views his operation as way to provide people incomes while also contributing to long-term social development. He envisions a long-term sustainable ecosystem for crypto mining within the Chouf region which would harness the heat generated by mining computers as a broader heat source. This could present an alternative to burning expensive fuel or cutting down trees during the winter—a growing problem across Lebanon as freezing people seek warmth during blackouts.  

While the profit margins for mining at this scale are erratic based on market performance and small in comparison with pre-crisis salaries, the ability to secure any kind of external asset amid the current crisis is valuable. Whereas most large-scale cryptocurrency mining operations are conducted in a hyper-individualistic manner and characterized by little contact with local communities, the social embeddedness of Abu Daher’s work is what distinguishes his operation from the dozen or so other cryptocurrency agencies in Lebanon. Out of town miners that were illegally linking up to the electricity grid have been kicked out of the area, and the Lebanese police conducted a raid in Jezzine on mining operators in spring 2022. 

To be sure, cryptocurrency mining carries a huge cost in terms of energy and pollution. Globally, cryptocurrency produce an incredible amount of carbon dioxide. Bitcoin, the most popular global cryptocurrency, alone produces as much CO2 as New Zealand. Given their reliance on stable hydroelectric power, however, the communities in the Chouf offer a rare glimpse of how local communities with access to sustainable energy—water, solar, and wind—can innovate with cryptocurrency mining to offer an alternative store of value in the context of state collapse, providing access to livelihoods and connecting to broader social resilience. Whether that potential alternative future is utopian or dystopian remains to be seen, but the use of crypto—particularly mining—is increasingly present within livelihoods in countries experiencing rapid economic collapse. Lebanon is a canary in the coal mine of small-scale crypto mining across fragile or weak states, especially in areas with access to hydroelectric or solar power.

[1] Information about Abu Daher’s operation was collected by the author in a series of interviews as he conducted research in the region. 

Nicholas Shafer is a current Marshall Scholar at the University of Oxford and the Institute of Development Studies, where he focuses on the politics of West Asia and governance of emergent technology. He works as a freelance consultant on humanitarian affairs and development policy. You can follow him on Twitter @Nikopoly.




Source link

Traciwininger
Author: Traciwininger

Leave a Reply

Your email address will not be published.

Back to top button

Sign In

Register

Reset Password

Please enter your username or email address, you will receive a link to create a new password via email.