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Cryptocurrencies may be the last hope for those in the Middle East

December 3, 2021 at 11:30 am

A visual representation of digital cryptocurrencies, Bitcoin, 16 February 2018 [Illustration by Chesnot/Getty Images]

Everything in existence will be assimilated into the online world. Some things already have been. This has proven true with business, shopping, services, social life, journalism, warfare and with the recently-announced ‘metaverse’, perhaps even our lives. So it was only a matter of time before money itself was integrated into that dimension.

Anything related to finance, however, has knock-on effects which impact and alter every aspect of the economy. It comes as no surprise then that cryptocurrencies would be a controversial concept and practice. Like its very existence, the criticism levied against it was inevitable.

The world of cryptocurrencies continues to baffle many who look into it for the first time, and understandably so – it is still a relatively new concept that is not much older than the smartphone. Put simply, cryptocurrencies are coins and currencies in the digital realm, through which a system known as cryptography or a blockchain verifies transactions and maintains records in a peer-to-peer network.

The attraction of the coins and blockchain is not only that – similar to stocks and markets – money can be pumped in and profits can be made through investments, but primarily that the entire system is decentralised. There is no central entity which governs or regulates it, and wallets are protected and accessible only to those who own their ‘keys’.

There are, of course, ways to hack the online wallets, but it remains a severely minimal risk if the right security precautions are taken. There is no bank to gain access to the accounts.

That radical decentralisation and assured protection keeps it out of the reach of governments, banks and the global financial system. It is not known as “the people’s money” for no reason.

Unfortunately, however, such lack of regulation and centralisation has also notoriously made it a haven for fraudulent schemes, money laundering networks, and the funding of terrorist groups over the years.

Those risks and downsides do not deter millions of ordinary people from continuing to deal in the system, though, with its benefits and safety from government overreach attracting one group of people in particular: those living in countries suffering from economic crises or high inflation.

READ: Young Lebanese driving crypto ‘revolution’ after banks go bust

Lebanon is one such example. Over the past few years, especially since the catastrophic explosion that hit large parts of the capital Beirut last year, the country has been reeling from an economic crisis. The lack of a viable government, growing political divisiveness, and rampant corruption has only made it worse, with Lebanon suffering from severe shortages of fuel and essential goods. Above all, its currency has plummeted sharply.

The crisis resulted in the Central Bank of Lebanon issuing rules and regulations which made the withdrawal of cash in the form of dollars impossible, reportedly with the aim of protecting banks from bankruptcy. Even those with US dollar accounts have only been able to withdraw Lebanese liras – a phenomenon known as the ‘Lollar’ – which has caused hyperinflation due to the fact that one dollar is worth tens of thousands of Lebanese liras on the black market.

Mohamad Kalaaji, a software developer based in Beirut, told me that crypto provides a way around such obstacles. “You can send crypto and exchange it to people who do have dollars…Freelancers can receive funds instantly without losing anything [and] without the need for a bank and they can exchange with anyone who wants to buy from them.” The new market that has emerged, he said, has been enabled by “people who work as exchangers where they have an offshore bank account that can buy from sites like Binance or Coinbase, then sell it here by taking a percentage (like one to five per cent). Also, there are some business that would accept crypto without any issues at all.”

The concept has grown so popular and necessary in the country that a Bitcoin ATM was spotted in Beirut last month. Kalaaji said that it “gives transparent pricing and it is safer since you don’t have to risk being robbed or hurt when dealing with an exchanger in person.” He added that “the surprising part is finding that there are several ATM machines in different Lebanese areas that recently got introduced, and people are going crazy over it to a point that the Central Bank issued a statement against businesses that deal with crypto.”

Kalaaji believes cryptocurrencies have a promising future in Lebanon for years and decades to come: “It will change the country’s economic situation if the Lebanese expats decided to provide crypto to the locals here. Not only doesn’t it require a middle man to receive money but also it doesn’t require registration and papers to make a business work, which is a huge win…it will receive more adoption in the future.”

Above all, though, like for many Lebanese, it has benefitted him personally in the current economic crisis, in which he said the easiest method of investment “is through allocating a chunk of my paycheque into Bitcoins.” While many would intend to make a profit over dealing in crypto, it is overall a long-term investment. “I would say that it is an asset class that will protect me from the hyperinflation that is occurring here for the future where I would see its benefits…[in] the next ten years.”

READ: Local manufacturing is important for currency management in Turkey

In Turkey, too, the economy is currently undergoing a serious and sever rise in inflation, caused by a myriad of factors including President Recep Tayyip Erdogan’s battle against high interest rates, the lack of foreign currency reserves and potential foreign investment into the country, and the subsequent plummeting in value of the Turkish lira.

Similar to their Lebanese counterparts, Turks have increasingly taken up the use of crypto to relieve their financial woes. Some look to make profit by trading and others invest long-term by “holding” their savings in cryptocurrencies, the use of them has grown over 11 times since last year, according to data from July.

Gokce, a teacher based in Istanbul, told me that due to the daily devaluation of the lira, “of course keeping my money in a more profitable platform like crypto has helped, as it is helping everybody.” She added that “crypto coin adoption is big in Turkey,” citing public adverts promoting their use.

The Turkish government, on the other hand, has a different view. Erdogan, in September, declared something of a “war” against cryptocurrencies and raised concerns about their use in place of the lira. Months earlier, in April, the country’s central bank banned their use for the payment of goods and services. Furthermore, Ankara announced in July that it was preparing a bill to regulate cryptocurrencies.

Such efforts by strongmen such as Erdogan, of course, will only contradict what made crypto popular and trusted by millions in the first place: decentralisation and deregulation. Once a coin or cryptocurrency – or a platform on which it is exchanged – becomes regulated, that defeats its initial purpose.

While banks have always had the tendency to bend to the will of governments and, at times, fail to act independently, the attraction of cryptocurrencies has been their independence from the hands of the state.

Alex Gladstein, chief strategy officer at the Human Rights Foundation and an expert and advocate for the crypto market, told me that cryptocurrencies – in this case using Bitcoin as an example – are “a powerful tool for people in broken economies and authoritarian societies worldwide. In the past few years it has acted as ‘digital gold’ as a high-performing savings technology, and as ‘digital cash’ as a censorship-resistant payment network outside of the banking system.”

He emphasised the importance of the concept to those especially in the MENA region undergoing economic crises, saying it benefits “Lebanese or Turks escaping from inflation, Palestinians or Iranians escaping sanctions and financial controls, or human rights activists conducting their financial affairs when their bank accounts have been frozen.”

Gladstein predicted that cryptocurrencies in the Middle East “will have an even brighter future. It is one thing that is making a demonstrably good impact for millions of people even as governments and international institutions continue to betray them.”

READ: Iran uses crypto mining to lessen impact of sanctions, study finds

The views expressed in this article belong to the author and do not necessarily reflect the editorial policy of Middle East Monitor.