Lebanon News

Lebanese enthusiasts ‘mining’ a crypto future

A copy of bitcoin standing on PC motherboard is seen in this illustration picture, October 26, 2017. REUTERS/Dado Ruvic

BEIRUT: Perched on a nondescript hilltop between the plains of Zahle and Mount Lebanon, a worn-out bunker blends into the landscape of abandoned concrete carcasses that dot the Bekaa Valley. The decaying data center’s outward appearance is the perfect disguise for the high-tech function it has recently taken on.

Between its four walls, a platoon of “miners” operates day in and day out, belting out a loud hum.

Their job is not to extract ore, coal or other minerals. In fact, the miners are not even human.

Modern-day miners are powerful servers that sift through the network in search of cryptocurrencies – the most popular being bitcoin.

While some see digital currencies as a passing fad, enthusiasts across the globe view it as a revolutionary trend and are going to great lengths to profit from its potential.

Lebanon is no exception, but the government’s lack of an official stand on cryptocurrencies has introduced uncertainty. Jad, a 27-year-old security engineer who asked for his identity and the location of the data center to be concealed, said he had two main concerns.

“The first concern is theft,” he told The Daily Star, stressing the value of around 120 servers stacked in the mining facility. The second concern is the Lebanese authorities.

“Say this week they decide that bitcoin is illegal in Lebanon. We need to stay on the safe side,” he said.

A dozen mining enthusiasts have set up their servers – or what they refer to as “stations” – in the Bekaa facility. Once the equipment is installed, the activity is hardly time-consuming. “You just turn a switch on and you are done,” Jad said. The servers are left by their owners to run software on a loop, combing through heaps of data in a constant buzz.

To unearth a bitcoin, these powerful computers must solve a complex mathematical puzzle. If they succeed in solving the riddle and finding the “nonce” – a sequence of numbers used once – a bitcoin is obtained in exchange. In the protocol’s design, bitcoins have a capped total of 21,000, just as gold exists in a finite quantity underground.

When its anonymous inventor released the open-source software that launched the first decentralized digital currency in 2009, they envisaged the mathematical riddle as a reward process that would decentralize the issuing of bitcoins, taking it away from a central bank and empowering its users.

Human intervention is needed in the mining process only if the “hash rate” – the rate at which the cryptocurrency is retrieved – significantly slows down, indicating the likelihood of a malfunctioning server.

Financially, the activity requires a greater investment.

“We started two or three years ago with simple mining, with our own computers or old computers,” Jad said. Back then, the initial investment costs and the level of difficulty in retrieving bitcoins were much lower. As interest in cryptocurrencies rose, more servers started competing and the task became much harder.

In parallel, the fluctuations in bitcoin prices also toughened the game.

“It’s not profitable anymore, so I’ve been turning off my miners for a while,” Jad said. In December 2017, the price of a bitcoin reached $17,900, while it has presently tanked at little over $7,500.

Accordingly, profits also sunk. Last month, revenues averaged $3,820, while they had reached $37,000 at the end of 2017.

“We need prices to be over $12,000 [to have the desired profit],” Jad said. “If the prices go up, then we are back in the game.”

Overall, Jad invested over $97,000 in the necessary S9 and Avalon miners. This did not include the cost of the occasional payoff to customs officials to let the expensive servers in, as well as the hefty monthly electricity costs.

The former data center now feeds on an average of 2 to 3 kilowatts per hour, amounting to bills of LL12 million ($7,960) to LL18 million per month. Unlike other areas of Lebanon, the Zahle area is equipped to provide the required 24/7 electricity needs.

Up until now, Jad has managed to recover his investment and carve out a small profit margin.

Like other cryptocurrency enthusiasts in Lebanon, he still thinks the juice is worth the squeeze. “It’s a revolution,” he said.

Budding Lebanese entrepreneurs Antoine Yazbek and Zaki Soubra have also placed their bets on the future of cryptocurrency. Together they founded Crypten, an umbrella organization catering to the different needs of stakeholders who wish to get into the world of cryptocurrencies.

“There is a huge knowledge gap,” Yazbek said. “Very few understand [the] technology. To bridge that knowledge gap we thought we would create an advisory, consulting brand.” Alongside the lack of technical understanding, “there is a perception that anything crypto is forbidden,” Yazbek said, adding that this is not the case.

Banque du Liban, Lebanon’s central bank, explicitly forbids cryptocurrencies as a form of payment or settlement. Instead, it regards them as commodities that can be invested in, stored or exchanged, similar to gold.

While there is no formal legal framework yet, financial institutions are prohibited by BDL from trading bitcoins but individuals and companies are not. Technically, banning the use of cryptocurrencies would be tantamount to shutting off internet networks.

BDL did not immediately respond to requests for comment. However, The Daily Star previously reported its Governor Riad Salameh acknowledged the prominent role of electronic currency in the future and said Lebanon was considering a “state-backed digital currency.”

As Soubra remarked, however, even if governments accept digital currencies, this does not equate to embracing bitcoin. In the same speech reported by The Daily Star, Salameh professed his opposition to bitcoin for its lack of regulation.

Decentralized cryptocurrencies like bitcoin and Ethereum have strong advantages over centralized financial systems primarily because of their ability to operate without a central bank, which is seen as a single potential point of failure that hackers can target. What new entrepreneurs like Yazbek and Soubra aim to achieve is to create their own rules.

“We hope to self-regulate. We don’t want to reach a point where there is a lot of money lost and the central bank will come in and tell us [what to do],” Soubra said.

“For Lebanon, this is a great opportunity to embark in a new technology that is a global phenomenon,” Yazbek said.

He added having a regulatory framework is crucial to that.

Stephane Abichaker, a partner at the CDC Blockchain startup working on digital currency solutions, is advocating for a middle ground between the current centralized financial system and decentralization. “[BDL] cannot stop bitcoin. This is a technical truth,” he said.

“Our proposition is to go hybrid, with the central bank abandoning part of its power or by [joining forces] with other central banks. So you are not issuing a national cryptocurrency, but a regional one.”

The United Arab Emirates and Saudi Arabia are taking steps in this direction. Local media reported in December 2017 the two countries were teaming up to create and issue a digital currency and that their central banks were building up a framework for this technology.

According to Abichaker, this is only the beginning and cryptocurrencies are the future. “Bitcoin [for example] has 1,700 competitors [and] has resisted inhibition from regulators and also from its own competition,” he said.

“This revolution is unstoppable.”

 
A version of this article appeared in the print edition of The Daily Star on June 07, 2018, on page 3.

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