In bankrupt Lebanon, locals mine bitcoin and buy groceries with tether, as $1 is now worth 15 cents

Aerial view of the seafront Manara district near downtown Beirut.

It sounded like a scam when he heard about it.

After decades of expensive wars and bad spending decisions, a borderless digital currency operating outside the reach of bankers and politicians sounded like salvation.

The hometown of Gebrael was a village east of Lebanon. He had lost his job and needed to find a new one. Locals were not allowed to withdraw money from their accounts in the spring of 2020. It wasn't a good idea to receive cash via international wire transfer since these services would take U.S. dollars from the sender and give Lebanon pounds at a much lower rate than market value.

Gebrael said that he would lose half of the value. It was a good way to get money from outside of the country.

Gebrael discovered a thread dedicated to connecting employers and their employees. A short commercial was filmed for a company that sold tires. The man was paid $5 in the virtual currency. He was hooked even though the amount was small.

Georgio Abou Gebrael filmed a short commercial for a company that sells tires, in exchange for $5 worth of bitcoin.

Half of Gebrael's income is from work that is not traditional. The other half of his salary is in the U.S. dollar. Beyond being a convenient way to make a living, he also has a bank.

Gebrael withdrew all of his money when he got paid for his work. He buys a small amount of the virtual currency on Saturdays. He spends the rest on daily needs and renovations.

Lebanon has a banking system that is fundamentally broken after decades of mismanagement. The minimum wage has fallen from $450 to $17 a month, pensions are worthless, and bank account balances are just numbers.

Ray Hindi is the CEO of a management firm dedicated to digital assets.

The situation hasn't changed since the beginning of the year. Banks limited the amount of money that could be withdrawn. Hindi, who was born and raised in Lebanon, said that you could have taken out your money with a 15% haircut.

People look at their bank statements and think they will be made whole at some point.

Despite losing most of their savings and pension, Gebrael's parents are still holding out hope that the financial system will change eventually. The difference is being covered by Gebrael.

Others don't trust the monetary system at all. It's time to enter the world of digital currency.

Many locals think of cryptocurrencies as a way to survive. Some people are mining for digital token as their only source of income while they look for a job. Others arrange secret meetings via Telegram to swap stable coins for U.S. dollars in order to buy groceries. Almost all of the locals wanted a connection to money that made sense, even though the form of adoption varies.

Gebrael said thatBitcoin gave them hope. I have been living in my village my whole life, and I have been helped by the use of the digital currency.

General view of Beirut, Lebanon in 1956.

Between the end of the second World War and the start of Lebanon's civil war in 1975, Lebanon's capital earned the title of "the Paris of the Middle East." The world's elite flock to the Lebanon capital, which has a large French population, Mediterranean seaside cafes, and a banking sector known for its resilience and emphasis on secrecy.

Lebanon was an ideal location for rich people to park their money after the civil war ended. According to an estimate shared by Dan Azzi, an economist and former CEO of the Lebanon subsidiary of Standard Chartered Bank, interest rates ranged from 15% to 31% on US dollars. After the civil war, Lebanon had to draw in foreign currency to re-stock its finances.

The strings were attached to something. There was a lock-up window of three years for some banks. The system worked well for some time. The government went on an undisciplined spending spree with the money it borrowed from the banks after the banks received an influx of cash. The mirage of easy money was reinforced by the government putting some of that borrowed cash toward maintaining a fixed exchange rate.

Tourism and international aid, as well as foreign direct investment from oil-rich Gulf states, helped shore up the balance sheet of the central bank. The brain drain and the influx of money from the Lebanon diaspora injected dollars as well.

Remittances as a percentage of GDP peaked at 26% in 2004, but stayed high through the financial crisis. Hezbollah, an Iranian-backed, Shiite political party and militant group in Lebanon, caused some of the country's biggest donors to stop giving.

A vandalized ATM in Beirut, Lebanon.

The government's budget deficit went further into the red as it tried to rebuild from the civil war.

The head of the central bank decided to dial up banking incentives in order to stave off a complete economic collapse. El Chamaa says that people who deposited U.S. dollars earned the highest interest.

The era of easy money came to an end in October when the government proposed a lot of taxes. The October 17 Revolution was the result of people taking to the streets.

The government was forced to default on its debt for the first time in history in early 2020 as the people revolted. More than 200 people were killed and billions of dollars in damages were caused by an explosion at the port in Lebanon in August of 2020.

Anti-government protesters take part in a demonstration against the political elites and the government, in Beirut, Lebanon, on August 8, 2020 after the massive explosion at the Port of Beirut.

The banks were frightened by all the chaos and first limited withdrawals and then closed their doors. The root of hyperinflation was found. The local currency had a peg of 1,500 lebanese pounds to $1 for 25 years.

Hindi said that you needed a backpack to go for lunch.

The banks refused to keep up with the depreciation and offered lower exchange rates for U.S. dollars than they were worth. Money in the bank was worth less than it used to be.

The new form of money was referred to as "lollars" by Azzi. According to estimates from multiple locals and experts in Lebanon, each lollar is paid out at a rate worth about 15% of its actual value.

The full market-rate exchange rate is still offered by banks. These are referred to as "fresh dollars".

This was the time when money stopped making sense for a lot of people in Lebanon.

Hindi told CNBC that he sends dollars from his Swiss account to his father's account in Lebanon. My dad is running risk with the bank because they count fresh dollars as fresh dollars.

When the bank began to impose these restrictions on him, he had $3,000 in his savings account from odd jobs he did in graduate school.

El Chamaa regretted not withdrawing all of his money before the crisis hit. The writing was on the wall because the bank started charging me a small percentage for every dollar withdrawal I made a month before the crisis hit.

El Chamaa has grown accustomed to withdrawing money from his bank account at a "bad rate" of 10% to 15% of its original worth, but he would never deposit cash in a Lebanon bank again. He keeps his life savings in cash and pays for his services with his bank account.

An exchange dealer shows money at a currency exchange office as the value of the Lebanese currency against the US dollar continues to drop. The Lebanese currency on Tuesday sank to a new low on the black market as the exchange rate of one U.S. dollar has reached 30,000 Lebanese lira.

His account is not easy to access. There were power cuts and the banks closed again in September.

The new norm is bank heists in which locals demand money from their accounts. Some people have taken hostages in order to access their savings to pay hospital bills, while others have brandished toy guns and hunting rifles. A Member of the Parliament of Lebanon demanded her savings be frozen for medical expenses, as well as a former ambassador.

The fundamentals have been bad since the beginning of the year. Hindi said that they haven't changed much.

Lebanon's economic and financial crisis is one of the worst since the 1850s, according to the World Bank. Almost all of the population of Lebanon has fallen below the poverty line, according to the UN.

The local banks are estimated to have losses of $65 billion to $70 billion, making them four times the country's GDP. There are conflicting messages from the government's top brass as to whether the country is officially bankrupt.

Lebanon is in talks with the International Monetary Fund to get some help. There are a lot of conditions attached to extending a $3 billion lifeline. There is a lack of power as Parliament fails to choose a president.

Demonstrator looks on as Lebanese policemen stand guard outside the Central Bank in Dec. 2018.

Two years ago, Ahmad Abu Daher and his friend began mining ether with three machines running on hydroelectric power in Zaarouriyeh, a town 30 miles south of Lebanon.

The proof-of-work model used by ethereum was based on high-powered computers that crunched math equations in order to verify transactions and simultaneously create new ones. The network is still secure.

A lot of electricity and expensive equipment are required for the process. Because miners compete in a low-margin industry where their only variable cost is energy, they move to the world's cheapest sources of power.

The hydropower project harnesses electricity from the 90-mile Litani River in southern Lebanon. He says he gets 20 hours of electricity a day.

Abu Daher said that they were getting fresh dollars through mining.

Ahmad Abu Daher and his friend began mining ether with three machines running on hydroelectric power in Zaarouriyeh, a town 30 miles south of Beirut in the Chouf Mountains. Abu Daher has since scaled his business to thousands of machines spread across Lebanon.

Abu Daher and his friend expanded their mining operation when they realized it was profitable.

They built their own farm and began re-selling and repairing mining equipment for other people. They started to host rigs for people in Lebanon who needed stable money but lacked the technical expertise, as well as access to cheap and steady electricity, which is a highly coveted commodity in a country with crippled electricity grids. Outside of Lebanon, Abu Daher has customers in Syria, Turkey, France, and the UK.

It has been 26 months since they first opened their doors. He said that he made $20,000 in September, half of it from mining and half from selling machines.

The government is cracking down on illegal activity.

Police raided a small mining farm in the town of Jezzine in January and took away mining rigs. The authority that oversees the country's hydroelectric sites said that it was training its resources and draining electricity.

Abu Daher doesn't worry about being raided or the government's proposal to raise the price of electricity.

AntMiner L3++ miners running at one of Ahmad Abu Daher’s crypto farms in Mghayriyeh in the Chouf Mountains.

He said that they did not have any issues with the police because they were taking legal electricity.

Abu Daher says that he has set up a meter that tracks how much energy his machines have used, whereas other miners have hitched their rigs to the grid illegally and aren't paying for power.

A lot of other people are having problems because they are not paying for electricity.

Three years ago, Rawad El Hajj got to know about Abu Daher's mining operation through his brother.

El Hajj said that he jumped into mining because there wasn't enough jobs in Lebanon.

Two miners were purchased by El Hajj, who lives south of the capital in a city called Barja.

El Hajj said that they went bigger and bigger every month.

Rawad El Hajj, a 27-year-old with a marketing degree, tells CNBC that his 11 machines mine for litecoin and dogecoin.

The distance to Abu Daher's farms makes El Hajj pay to host and maintain the rigs. He tells CNBC that his machines bring in about $426 a month, which is the equivalent of about.02 bitcoins a month.

Salah Al Zaatare is an architect living in the coastal city of Sidon. In March of this year, Al Zaatare started mining doge coin and lite coin. He has 10 machines with him. The machines that Al Zaatare uses are newer than El Hajj, so he makes more money.

Al Zaatare decided to invest his life savings into mining equipment last year after pulling all of his money out of the bank.

Al Zaatare thinks it will be a good investment for the future.

According to official data, 3% of those earning a living in Lebanon are paid in a foreign currency.

Nicholas Shafer said that if you can get the machine and the power, you will get the money.

Abu Daher, who graduated from the American University of Beirut six months ago, has been experimenting with other ways to get more use out of digital currency. He designed a system to harness the heat from the miners as a way to keep homes and hospitals warm during the winter.

It is not for everyone.

The cost of buying gear, plus paying for electricity, cooling, and maintenance seemed like a way to get what he wanted.

He said it was easier to just buy the virtual currency.

AntMiner L3++ miners running at one of Ahmad Abu Daher’s crypto farms in his village of Zaarouriyeh.

Gebrael uses a service called FixedFloat to swap some of the virtual currency he has earned through his work for tether, a stable coin pegged to the U.S. dollar. He goes to one of the Telegram groups to arrange a trade of tether. tether doesn't offer the same potential for appreciation as other cryptocurrencies, but it is still a currency that the people of Lebanon still trust.

They set up an in-person meeting when someone is willing to swap. Gebrael usually chooses a coffee shop or the ground floor of a residential building because he is often making the trade with a stranger.

The person I contacted asked me to go up to their apartment, but I was scared because it was at night. They came to meet me on the street. I try to stay out of harm's way.

Lebanon's mostly-cash economy depends on these kinds of back channels.

According to El Hajj, it is easy to get cash from the virtual currency. A lot of guys exchangeUSDT for cash.

Exchanges over the Telegram group range from $30 to hundreds of thousands of dollars, depending on the exchange.

A network of over-the-counter traders swap a variety of different types of currency for Cryptocurrencies. The model is similar to the centuries-old hawala system, which facilitates cross-border transactions via a sophisticated network of money exchangers.

Lebanese anti-government protesters seal an ATM with tape in Beirut during a rally against the banking system on November 11, 2019.

A 1% commission fee is charged to both of the parties involved in the trade, which is offered by Abu Daher.

Abu Daher said that they started selling and buyingUSDT because of the high demand.

Some people are tinkering with covering their daily expenses in tether directly to avoid having to go through the motions of setting up an informal trade with someone else.

A man stands outside a currency exchange booth in the Lebanese capital on October 1, 2019.

Even though it's against the law in Lebanon to acceptcryptocurrencies as a payment method, businesses are still advertising that they accept them.

It's widespread with the use ofUSDT. There are a lot of coffee shops, restaurants, and electronics stores that acceptUSDT as a payment, so that is convenient if I need to spend not in fiat, but from my bitcoins. The government has a lot of problems right now, and it's not worried about accepting cryptocurrencies.

According to El Chamaa, local businesses in the Chouf region have begun accepting payments in the form of virtual currency. In Sidon, the owner of a restaurant called Jawad Snack says that around 30% of his transactions are in the digital currency.

The owner said that it was better for him to accept tether or U.S. dollars because of the high inflation in Lebanon. He says he uses Abu Daher most of the time.

Abu Daher uses tether to pay for imported machines, but he still has to cover a lot of his expenses in the Lebanon lira, as well as in the US dollars.

tether is accepted at some hotels and tourism agencies.

Detailed administrative and political vector map of Lebanon.

Lebanon is second only to Turkey in terms of the volume ofcryptocurrencies received in the Middle East and North Africa, according to new research from Chainalysis. It is in the middle of the pack in peer-to-peer trading volume.

It's important to have access to a phone. According to official statistics, internet penetration in Lebanon is 80%, but the country's power cuts cause internet service to be disrupted. Telecom networks in the country use their own power generators.

We are using our phones. Abu Daher said that it was the easiest way to go.

A Lebanese woman stands next to her empty refrigerator in her apartment in the port city of Tripoli, north of Beirut, on June 17, 2020.

The marketing manager for Pfizer in Lebanon tried to get rich by investing in the virtual currency.

Younes became interested in the economic theory behind digital currencies like bitcoin when he was a pharmacy student.

He noticed similarities between Lebanon, Venezuela, and Argentina while he was studying.

Younes said that he emptied his account in the middle of last year, just a few months before banks locked people out of their accounts. I was paranoid due to the use of the virtual currency.

Younes told CNBC that he kept the rest of his money in cash. The majority of his cash is in the virtual currency.

Younes told his family to withdraw money from the bank and not keep it in the bank.

No one really believes a person who is not related to the banking system.

Graffiti reading “VIRUS” and “THIEF” covers the facade of a fortified local branch of the Bank of Beirut in the Lebanese capital on May 18, 2020.

Younes told CNBC that most of his family works in the banking system in Lebanon.

He said that they believe that everything is okay with the banking system.

His family was wiped out in a short period of time.

The net worth of his father-in-law was protected in the bank.

Younes said that his family was hurt by the devaluation and currency crisis.

The erosion of earning power is a result of the currency's spiral.

She is a teacher for example. She makes $50 a month. Younes explained that his father is a doctor with 30 years of experience and makes $500 a month. Every few months, we have a small devaluation, and it all culminated in a big devaluation of the Lebanon lira.

Younes started a group with a mission to help close the knowledge gap between Lebanon and the rest of the world.

A man holding a smartphone shows a screen grab taken from a video of an armed depositor gesturing at employees of a local bank in Beirut after he stormed the branch and held employees and customers as hostages. The man, who entered the bank carrying a machine gun and gasoline, demanded to be handed over part of his deposited money, which amounts to $209,000.

People are afraid to put their money in the banks because of the risk of theft, according to multiple sources. Alex Gladstein is the chief strategy officer for the Human Rights Foundation.

One of the slogans of the project is "not your keys, not your coins", meaning that rightful ownership of token comes through the custody of the passwords that allow it to be moved out of the wallet.

Money in the bank in Lebanon is all gone. How much will you see again? Gladstein said that if you self-custody yourbitcoin, you can use it as you see fit and send it anywhere in the world. It has more power than the dollar.

There are many ways to store coins. Users will be able to use online exchanges to hold their token. Abu Daher and Al Zaatare both keep 100% of their cash in onlinecryptocurrencies such as Binance and Ku Coins.

Users with more tech savvy cut out the middleman and use their own hardware wallet. Gebrael prefers the security that comes from self-custody of his digital currency. He tells CNBC that he keeps all of his money in a thumb drive device.

A person holds a cryptocurrency hardware wallet.

The appeal of cold storage has a lot to do with the fact that he doesn't have to connect his personal identity to his digital currency. He said that the anonymity offered by self-custody protects him from being caught in the crosshairs of government sanctions. The case of the Canadian government blacklisting all the cryptocurrencies connected to the truck drivers participating in the freedom convoy protests was cited by Gebrael.

He dislikes the user experience of centralized digital asset exchanges with all their flashy charts.

They want you to gamble your money.

According to metrics offered by coinatmradar.com, there are sixbitcoin ATMs in Lebanon. According to those who spoke with CNBC for the story, the best way to access the virtual currency is either through mining or tether.

A worker uses a mobile phone torchlight to illuminate his cutting space at the fish market, where portable emergency lighting runs due to a power cut, in Beirut, Lebanon, on Wednesday, Sept. 8, 2021.

It is a matter of perception, according to Younes, as to how reliable it is to safeguard wealth in an inherently volatile asset.

Younes said that it was $3,500 three years ago.

He told CNBC that he hasn't made any money since he first bought it. The fact that he wants to bet on a new monetary system is one of the reasons why he invests his cash into the world's largestcryptocurrencies.

He said that there is a system that is uncorruptible and that it is permissionless and censorship resistant. It's not possible to devalue the currency due to its monetary policy.

Money is a belief system for humans. It has been a lifesaver for some in Lebanon.

After reporting on the ground at Abu Daher's crypto mines, El Chamaa still stood by his decision.

It is worth less than it was a year ago. El Chamaa said he was glad he didn't like it.

It doesn't make sense for Warren Buffet to say that it doesn't have an inherent value and then pass it on to the next person. He said he was a bit cautious.