Cryptocurrency gives rise to new ‘mining’ towns in Lebanon

Cryptocurrency gives rise to new ‘mining’ towns in Lebanon

The machines, known as ASIC, that are used for cryptomining cost between $800 and $50,000 depending on the coin and the type of machine.(Credit: Mohamed El Chamaa/L'Orient Today)

IQLIM AL-KHARRUB — It’s a quiet Sunday afternoon in the middle of the Chouf mountains. Families make their way for a weekend picnic in the nearby forest. People are racing on their ATVs in the empty streets. Cars pass by, but other than that, not much is going on here. Few businesses are open.

A white Range Rover pulls up. At the driver’s wheel is 21-year-old Ahmed Abu Daher, the mastermind behind a new industry that has transformed the town’s economy in less than a year, keeping it afloat while the rest of Lebanon is falling apart. This town has been buoyed by cryptomining, a specialization made possible by its good luck in having access to plentiful electricity.

In Lebanon, where electricity was scarce even before the crisis and now most of the country is struggling with crippling power cuts, it’s the least of the town’s worries.

That’s because the nearby hydro-electric plant provides 18 hours of electricity a day, which has been unheard of in the rest of Lebanon for years. While the capital Beirut used to get 21 hours of electricity a day, owing to its economic importance as a tourist and service hub, this town is starting to boom because of its geographic proximity to the hydro plant. Cryptomining requires a plentiful supply of cheap electricity.

Cryptomining is the procedure by which new units of a digital currency are created or “minted.” Among the newly minted digital currencies are Bitcoin and Ethereum, along with many lesser-known coins.

These coins are paid as a reward to the computers or mining machines running the decentralized blockchain software and that succeed in validating one of the many transactions after solving a complex mathematical equation. The payment comes in exchange for the expended computational power, what is known as proof of work.

In recent years, mining has become a highly competitive pursuit, attracting people from all walks of life seeking to earn a passive income. However, in practice, earning income from mining is something of a lottery; this is why miners generally pool together to increase their chances of being the first to crack the code.

When the financial crisis hit Lebanon, many people rushed to transfer whatever was accessible of their US dollar funds to crypto exchanges using their credit cards and other means. In the beginning, it was the fastest way to protect their assets from the bankrupted banking sector; later on, it was to generate profits through trading and speculation. However, given the volatile nature of trading and the potential for losses, the tech savvy crowd began investing in cryptomining equipment looking for a steady source of income. Then they moved from a structure of one to several machines and began building larger structures, known as farms, which could house up to hundreds of customized PCs or rigs.

In the part of the Chouf where Abu Daher has set up operations, cryptomining is so prevalent that many local businesses now accept payment in cryptocurrency through a digital coin wallet.

Maher Nasreddine, who runs a snack restaurant in the area, has been accepting payment in USDT, a cryptocurrency considered stable because backed by the equivalent US dollar amount, for over a year now. He told L’Orient Today that he prefers payment in this currency because of how unstable the Lebanese lira is.

“The supplies I get are all priced in dollars, so it is preferable that I accept USDT” through Binance, he said. Since so many people in the area are now in the crypto industry, many of his customers are able to pay with digital coins, which are transferred via digital “coin wallets.”

Abu Daher’s base of operations is in the Iqlim al-Kharrub area in a mixed Christian-Muslim town in the predominantly Druze Chouf, located on a mountain ridge; the main road runs alongside the ridge and is flanked by houses on either side. Along the road, huge utility poles with power lines transmitting electricity are nestled in a forest of oak, olive and pine trees that almost obscure them.

The Litani River Authority’s hydropower project, which begins in the Lake Qaraoun area in east Lebanon, harnesses electricity from the Litani river and transmits it to three stations, with one of them being the Charles Helou station, which serves the part of the Chouf where Abu Daher is operating.

Lebanon was actually one of the first countries in the Middle East to utilize water to produce electricity.

The Litani plant was first spearheaded first in the 1950s, but was only completed in 1965. The plant was first built during the tenure of President Charles Helou after whom the station near Abu Daher’s town is named.

By 1969, the hydroelectric power produced by Litani plants produced 79 percent of Lebanon’s overall generated electricity, but in 2020 only accounted for 6.7 percent of total electricity output according to Électricité du Liban’s most recent figures.

According to Nick Kardahji, who wrote his PhD on the development of Lebanon in the pre-Civil War years, successive Lebanese cabinets were reluctant to fully realize the Litani project because they were unwilling to confront private sector interests that would have taken a hit if Lebanon had expanded its use of renewable energy.

As a result, hydropower in Lebanon never expanded beyond parts of the south and the Chouf. This has led to some towns having nearly 24-hour public electricity while other towns a stone’s throw away have to pay premium prices for generators for backup power. There are around 109 municipalities that utilize hydro-electricity.

After last year’s energy crisis, many people living in Beirut and the cities decided to move to these areas to escape the heat and the darkness. This led the electricity supply in the region to fall from 20 hours a day to 18. Moreover, other businesses have started sprouting up in the area to take advantage of the electricity. Aside from the cryptomining operations, these also include a tissue paper company.

However, the cryptomining industry in particular has received a bad reputation in recent weeks as a lot of miners are sucking up a lot of electricity. In January, residents of the town of Jezzine, which is also powered by hydroelectricity, complained that the increased number of miners in the area had caused the system to overload. This had led to blackouts, unheard of in the area. The Litani River Authority also blamed miners for draining the electricity supply.

In response, the municipalities asked miners to stop. In Abu Daher’s town, out-of-town miners were asked to leave.

But Abu Daher says the electricity issues are the fault of illegal miners who use electricity illicitly. He insists that legal mining operations like his are a benefit to the region.

He also insists he does business legally by setting up a meter through Electricité du Liban that tracks his electricity consumption, whereas others mine illegally — meaning that the electricity they consume is not tracked.

Abu Daher, who is an architecture student at the American University of Beirut, got into mining as the Lebanese financial crisis began to hit.

Before the crisis, the profits made from mining were not worth it for most people.

“Fifty dollars at the time did not mean that much to people,” Abu Daher recalls. But now with the minimum wage amounting to around $30 a month, such a prospect has made a huge difference.

Today, he says, the mining industry has provided a large segment of the community with employment.

Many of the facilities are either storefronts or small apartments; inside one former barbershop there are four ASIC machines that mine a certain amount of Litecoin and Dogecoin a day. Beside them are three air conditioners on the wall used for cooling during the summer months.

Many electricians who were previously unemployed have found a new livelihood as the machines need constant upkeep. Moreover, since they need air-conditioning in the summer to keep from overheating, air conditioning repair workers have found jobs too. This isn’t to mention the many programmers who were previously unemployed who are learning a new skill, Abu Daher said.

“If someone wants to install a machine in the town, you need someone to look after it, you also need someone to program it, you need electricians to maintain it, you take fees from this. A lot of people have benefited from this,” he said.

The industry has also trained locals in skills they can apply elsewhere, he said.

“The town was very far away from technology. The most advanced thing they knew was TikTok,” he said. “But now because of mining a lot of people know about IP [internet protocol] and use it to monitor the machines … Now, if they go anywhere, they at least know how to do something.”

Local landlords are also benefiting. At one of Abu Daher's mining operations, located in what used to be a barbershop, he pays $45 a month in rent, whereas the rent at his neighbor’s store is LL300,000 or about $15.

He has 10 locations, each of which on average produces $600 a month of net profit per location in different coins, depending on the prices of the coins at the time. The machines, known as ASIC, cost between $800 and $50,000 depending on the coin and the type of machine. Some other aspiring miners form a partnership with Abu Daher, which consists of buying a machine and placing it at one of his farms. He then takes a commission on the profit it generates.

Others have decided to set up their own machines at home and hire Abu Daher to program them. Helium mining is the most profitable but also more difficult than other coins. The machines used for helium need to be placed in an optimal location so that surrounding buildings do not block the signal, and Ahmed scouts these locations out and either convinces the property owner to get a helium machine or offers to rent the roof and place a machine of his own there.

In the one barbershop location alone, his investment is around $6,500; it would be much higher if he did not have access to cheap electricity, since one machine might consume half an ampere on its own. Abu Daher said that if he had to pay for a backup generator, there would be no profit at all. Likewise, he added that if the electricity bill goes up because of the planned increase in tariffs that is on the cabinet’s agenda as part of an electricity reform plan needed to get World Bank funding for energy imports, he will switch back to lower consumption machines.

He said he has tried installing solar panels, but he was prevented from doing so because he needs a special license. (In November of 2021, the Energy Ministry announced that it would issue licenses for those wanting to install solar panels, in response to rise in demand. This was seen as an attempt to regulate the industry, but the red tape presented more barriers).

Despite the short-term profits, in the long run, questions remain over whether this is a sustainable model or whether the crypto boom is headed for a bust.

Mona Harb, a professor of urban studies and politics at AUB, told L’Orient Today, “At the end of the day this is private entrepreneurship. The young men who are doing this are doing it for immediate profit, so there’s no shared interest.”

However, she added, “It’s interesting to think about how this source of revenue [could be used] for public interest for the common good of the town and how to leverage this income for projects that have an impact.”

To this end, Abu Daher said he is thinking about how mining can bolster the town’s tourism industry as a topic for his final year project in architecture.

He’s looking into making a connection between mining and eco-tourism and how one can enhance the other, sustainably reinvesting the profits. He’s also considering opening up a technical school that teaches programming in the town.

This can build on the cluster of skilled miners already there, which Harb says could be an asset for the area.

“I can observe an energy of young entrepreneurs that are quite skilled who managed to make a project and sustain it for a period of time and to profit out of it and this is something remarkable,” Harb said. “… How can this be leveraged for public interest? If I were in the administrative council, if I were a mayor, if I were someone who has public decision-making [power], for me this is a resource, this is an asset I would like to consider.”

IQLIM AL-KHARRUB — It’s a quiet Sunday afternoon in the middle of the Chouf mountains. Families make their way for a weekend picnic in the nearby forest. People are racing on their ATVs in the empty streets. Cars pass by, but other than that, not much is going on here. Few businesses are open.A white Range Rover pulls up. At the driver’s wheel is 21-year-old Ahmed Abu Daher, the mastermind...