The Lebanese Bitcoin
What if cryptocurrency could save us?
The Lebanese community got acquainted with cryptocurrency when Ripple (XRP) was on a hype, mid 2017. Some rushed to exchanges or social trading applications like “etoro” to buy something they didn’t know anything about, except the fact that its value in USD is increasing exponentially and that it could make them some quick money. That hype was indeed attractive; but most people were not aware that they are not buying regular goods with that money, rather a virtual currency that could devaluate all of a sudden. They probably used their credit cards to buy in USD, Ripple positions. Most of the people who got in were really late and the devaluation cost them a significant amount of money. Those people didn’t have any knowledge about day trading or long term investments in crypto, but jumped right into the game, sometimes at the all time highs at the “bull” market.
A few computer geeks took their curiousness to the next level and actually learned about what cryptocurrency was. After all, not everyone is supposed to know about everything; but in my case I wouldn’t risk my money on an unknown invisible asset. Would you?
As a computer engineer working in a software development sort of fintech company, I researched, read and listened to more than a hundred podcasts and YouTube videos before investing a dime in crypto.
Let me put these hundreds of hours to good use and help explain in a few words the world of cryptocurrency (if you’re already knowledgeable about it, jump to Why digital currency?)
The crypto world has three pillars you should be familiar with: The blockchain technology, cryptocurrencies and trading/investing.
The blockchain technology
Blockchain is the record-keeping technology behind bitcoin. As its name indicates, a blockchain is a chain of blocks that consist of digital information. A block is made of three parts:
1- The transaction information (e.g: date, time, amount…)
2- The digital signature of the parties participating to the transaction
3- A unique hashcode
When a transaction occurs a chain of actions is started on a distributed network of computers all over the planet that execute a part of a heavy mathematical calculation that validates the transaction. This calculation verifies the transaction, stores it in a block and provides the block with a hash that indicates the success of the calculation thus the success of the transaction. Once the transaction is completed the transaction data and details like the time, the location and the block that was added to the blockchain becomes publicly available.
The goal of blockchain is to allow digital information to be recorded and distributed, but not edited.
Blockchain is a distributed, decentralized, public ledger.
Alright, I know! Even in simple words it’s complicated for someone who hasn’t seen or written a line of code in his life. That concept can be difficult to wrap our heads around without seeing the technology in action, so I’ll explain briefly how Bitcoin uses this technology in a bit.
Bitcoin is a cryptocurrency
The Bitcoin is a protocol built on top of the blockchain. In the crypto world every technology built on top of a blockchain has its release white paper that describes its conception and purpose. Here is the Bitcoin white paper. A so called incognito Satoshi Nakamoto has created it and released it in January 2009; till date this person hasn’t been identified.
Nakamoto referred to the bitcoin as “a new electronic cash system that’s fully peer-to-peer, with no trusted third party.”
There is a total number of 5.9 million bitcoins that can be produced using a complex algorithm built on the blockchain. When a person wants to perform a transaction using bitcoin, a network of computers will compete to verify the transaction. Those computers are subscribed to the blockchain and use their computing power (CPU and GPU) to solve a complex mathematical algorithm that will result in creating the “hash” of the block and verify the transaction. Each contributor to this computation will be rewarded by an amount of satoshis — satoshi is the sub-unit measure of a bitcoin.
The transaction is secure, decentralized, peer-to-peer, and verified with a very complex algorithm and once completed becomes public and irreversible. There is no third party that regulates the transaction between the two peers who decide to make the transaction.
Trading and Investing
The third pillar that you should be familiar with is trading and investing. The blockchain is a technology. Bitcoin is a cryptocurrency built on top of the blockain and allows digital transactions between individuals peer-to-peer securely. But what is etoro, and what does buying a position of XRP mean, and how did Ripple’s value go from $0 to $3.2 and then suddenly dropped down?
A little information about XRP.
Ripple is a protocol, just like Bitcoin is a protocol. It’s a programmatic language that serves a purpose. Ripple was made for the banking sector in order to replace the old transactions system to a more robust decentralized and secure blockchain system. The Ripple company decided that it will create a cryptocurreny (a coin) and name it XRP. This is a sub-business they launched, that is released on the coin market in order to be traded by crypto investors. Again a lot of information to digest but I’ll try to simplify it. You know the New York stock exchange? It’s where people trade stocks that are made public by companies (e.g Microsoft, Amazon…). Those stocks are traded by people over the clock and their prices are affected by the performance of the company, a product it launched, a sexual harassment at its offices, a scam that it’s facing, a virus that destroyed its servers… All kind of parameters affect the price of the traded stocks in the world.
Alright back to crypto. Crypto trading is a parallel universe to the NY stock exchange. It’s based on digital coins, released by companies that are building a technology on top of the blockchain technology or similar and that use those coins for marketing their companies, for raising money for their startups, and for reaching the top of the cryptocurrencies market. XRP is one of those coins released in the market by the Ripple company. If you want to have an idea about the coins in the market visit coinmarketcap.com.
PS: Bitcoin, itself is the most trusted coin in the market, but is not bound to any tech company, although it can be used in any product since it’s publically available and its code is open-sourced. It’s simply the first coin that was ever released to the crypto market. And it’s the coin that everyone invests in. It has the highest market cap of all coins and dominates the highest price in the market.
Wait, I didn’t forget to write about “etoro”. It’s a trading social platform that includes crypto trading. It takes your money and sells you positions on the current market price of the coin and allows you to buy and sell your position in order to make or lose money. When all that is done and you want to quit, you can retrieve the money you gained or the rest of your invested money back to your credit card.
I never used such apps. For the simple reason that cryptocurrency is an actual thing you can own. It’s a piece of code that you can store in a digital wallet. So instead of buying and selling positions, you can own the coin, buy as many as you want when the price is low, keep them in your wallet until the price goes higher and then sell them on an exchange for that high price to win some good money. If you’re more of an investor, you buy the coins you like those you believe in and in the companies launching them, those who have a promising technology that will in your opinion boom, and only then that their coin will increase in value and which would make buying it a good investment. So you buy some of their coins, and store them in your wallet and HODL (a slang in the cryptocurrency community for holding the cryptocurrency rather than selling it).
You can find a lot of crypto exchanges online, my personal favorite is coinbase.com.
Fiat AKA printed currency
Fiat currency is the name given to the printed currency that is regulated and verified by central authorities, mainly the banks and governments. A fiat currency like the Lebanese Lira is printed and controlled by the central bank. It is also backed up by Gold in order to give it a real value. The LBP currency is pegged by the U.S. dollar. The Lebanese central bank strategy was to stabilize the peg at LBP 1507.5 to $1 since 1997.
Why digital currency?
The banking system has created its own regulations. For example using SWIFT codes as a world wide identifier of banks in order to transfer money. Any digital transaction or electronic payment between banks is subject to fees designated by the banks. Credit and debit cards cost the client a yearly fee. Transactions online using those credit cards are also subject to fees depending on the vendor and the website. ATM withdrawal from different banks or in different countries charge fees as well. The fees have been normalized as a legal cost of the service the bank is providing to his client, since this third-party is responsible of getting your electronic money from point A to point B. Your accounts at the bank are charges file fees and yearly account fees and SMS fees and all kind of services provided by your bank fees.
Your bank account transactions are a record in a database owned by the bank, shareable and easily manipulated and amended. Your money and everything you earn or spend, including your transactions data (e.g: spending 100$ at a strip club) are owned by the bank and can be seen by a very large number of people.
An expert hacker can hack a bank’s network and access its databases, edit the clients’ records, impersonate a client or an employee and perform electronic transactions to steel money or to incriminate someone else.
In fact, it’s not really as easy as I described since there are a lot of firewalls and security measures and backups that wouldn’t allow it. It’s not easy, but yet not impossible.
Your bank is a single point of failure (SPOF) when it comes to managing your money. This is why, today January 2020, your bank account that you have worked hard to fill with your own money, is not accessible, except based on the rules set by the bank’s executives. And the mobile application that the bank has advertised and marketed for so long in order to transform its image from an old fashioned building, to an e-platform of the 20th century, is only useful to check on the numbers in your accounts. But that same app is no longer allowing you to perform a simple transaction, like paying your credit cards dues, or transferring your monthly contribution of the house errands to your mom.
Now to answer the million dollar question. No wait, now to answer the bitcoin question of why cryptocurrency is considered better than fiat?
It is an alternative, and yes it is a better one indeed. Because it’s based on a blockchain, that is decentralized, distributed and public. The transactions are verified by a very complicated algorithm that is “theoretically” un-hackable, and once the block is chained, there is absolutely no way to edit the transaction without failing the whole chain. Not to forget that it’s a peer-to-peer transaction that costs no fees to a third-party, one that is getting richer on your money.
An interesting example
Before getting into the Lebanese market and why I am writing this story in the first place. Let me give you an example of how the blockchain could be used in a project you’re familiar with.
Airbnb. Let’s say you’re looking for an apartment for the weekend, once you find it and want to book it, you’d usually go ahead and pay via credit card. You submit all of your personal information, your credit card number and a transaction is made via your bank and the money reaches the app. Airbnb will then take its cut and provide the owner of the booked apartment his share of the pay.
In all those transactions, fees are being paid to the bank and of course the exchange rate could add some additional fees. Your personal information is stored in the application’s database in a row that includes everything about you, including the bank you work with, the currency you usually use, the last digits on your credit card, etc…
What are the risks and downsides in such transactions? To start with, your personal information is in a vulnerable place, a database that is editable, shareable, sell-able and hack-able. In case you are connected to a non-secured wifi network, your actions could be intercepted by a hacker and your credit card stolen faster than you can imagine. The fees that you are paying are going to the bank that had nothing to do with the transaction you were making. If you’re using an iOS application, the in-app purchase is also subject to 30% fee with every transaction, so another third-party is taking some of the transacted money.
In a cryptoworld, that same application, could be developed on top of a blockchain, where transactions are secured, distributed and non-hack-able, and where the cost is transferred peer-to-peer between the apartment owner and the person renting it without any bank fees whatsoever. The money is a cryptocurrency that is transferred to your digitally secured wallet where you can store it or even exchange it for Fiat money based on the market current prices.
The Lebanese bitcoin
It’s important to mention that Lebanon is a third world country and is enlisted among the countries that are sanctioned by the U.S.A. (although those sanctions are only against a political party and not against the banking sector). Our banking system is considered insecure where a lot of money laundering happen to the benefit of politicians and terrorist organizations.
You might not be aware that the website coinbase.com that I recommended earlier does not accept to enroll you as a Lebanese citizens except as an observer. You can create an account but you can not use your credit card or your Lebanese bank account to buy or sell crypto. Most of other exchanges have the same rules towards Lebanon. I have tried at least five of them, and the ones that used to work in the past were denied later on.
So when the Lebanese central bank says that the cryptocurrency is illegal in Lebanon. It’s not that we have the choice of using the world’s platforms anyway as Lebanese. We are already banned from the worlds exchanges.
It makes sense somehow to worry about crypto currency in a country with no regulations whatsoever in this field. Not to forget that even the things that are regulated have their rules broken every day.
Bitcoin can be used in black-markets, it can be used as well for money laundering, for illegal prostitution, drugs and gun markets, etc…
But how could you deprive us from a technology that could have saved us today from the worst nightmare we are facing in the history of our country? Banks closing on our life savings money, and denying our right to use it. A corrupt government going bankrupt and soon defaulting on the next payment deadline of its euro-bonds. A daily speculation of the devaluation of the LBP against the USD from LBP1507.5 to LBP2000 and maybe more.
I could have invested at least half of my money in Bitcoins, stored them in my digital wallet, sold them when needed online in the crypto exchanges and cashed them to any foreign account to preserve my lifetime savings from vanishing from under my nose.
In a throwback to 2017 where the mastermind of the current crash of the Lebanese Market Mr. Riad Salameh, announces the launch of a project intended to create the Lebanese digital currency. You can use for reference this english article and this arabic article.
Salameh at that time hadn’t predicted that his financial engineering would possibly destroy our economy and monetary system given that we are governed by corrupt politicians.
The crash has transformed the USD into a Lebanese Bitcoin.
A digital asset that exists only in our digital “wallets” bank accounts, and that can only be transferred digitally inside the country and with no possibility of conversion to Fiat money for lack of bank notes. So we’ve waited since 2017 for that Lebanese digital currency to see the light, and it only showed in late 2019 without even the effort of the central bank digital project.
Instead of destroying the economy of our precious country, the central bank should have opened it to the world’s best technologies. It should have enabled the Lebanese entrepreneurs to benefit from the development of the modern world to serve Lebanese fintech startups. Our generation is capable of exporting products and competing with the world’s biggest industries.
Instead, our generation is revolting in the streets of Beirut. Late at night before going to bed, after washing our faces from the expired tear gas and storing our Lebanese flag for another day of revolution, we surf LinkedIn for a couple of hours, trying to find a job, somewhere in the modern world, that could provide the least satisfaction to our enormous ambition to conquer the world!
