By Thalia Kattoura | Writer
Is a Decentralized Currency in Lebanon a Good Idea?
The debate of whether Lebanese citizens should adopt a decentralized currency as their mode of payment emerged amidst Lebanon’s economic crisis.
The devaluation of the Lebanese currency, as a result of the Central Bank’s Ponzi scheme, can be interpreted as a negative consequence of government intervention. Therefore, the motive behind using cryptocurrencies is an appealing solution to sidestepping Lebanon’s economic turmoil. In January 2020, BlueWallet (a wallet where one can buy, sell, and store bitcoin) revealed an increase of 1,781% in Lebanese registered portfolios – the highest global increase.
A Lebanese crypto-investor attested to Reuters that “It’s funny when people say crypto isn’t real because what we found out in Lebanon is that this digital currency is 100 times more real than the lollars we have in the bank”.
Compared to the volatility of the Lebanese pound, the usage of cryptocurrencies sounds utopic – is it the most effective way to redistribute power back to the people?
The Economics of Cryptocurrencies: El Salvador’s Framework
El Salvador is the first country in the world to recognize Bitcoin as a legal tender. This decision initially suggested a positive step towards a future where crypto is the default form of transaction. The government created a virtual wallet – “chivo” – to facilitate payment between parties, accompanied by a $30 bonus for each person who joined it.
However, El Salvador’s economy has continued to deteriorate, and locals have barely used cryptocurrencies for their transactions. The US National Bureau of Economic Research revealed that only 20% of those who downloaded the “chivo” wallet continued to use it after receiving the $30 bonus. Moreover, surveys by the Chamber of Commerce and Industry of El Salvador showed that only 20% of businesses accepted crypto payments – despite the law that deems it mandatory.
Security issues have sparked; many reported that they were subjected to identity theft, where people had stolen their ID information to gain access to their wallets.
Finally, the usage of Bitcoin has significantly dropped since its recent devaluation, demonstrating that decentralization does not exempt a medium of exchange from losing value.
The Economics of Cryptocurrencies: In Parallel with the Lebanese Pound
Ironically, several components draw parallels between mainstream cryptocurrencies and the Lebanese pound.
The most relevant characteristic is their vulnerability to devaluation – both the Lebanese pound and cryptocurrencies are subject to volatile changes in their value. The only differing factor is the source from which these changes occur.
Cryptocurrencies’ values are known to be influenced by the law of supply and demand. However, fraudulent projects, hacking, and politics also play their role in manipulating them.
Therefore, the decentralization of crypto does not redistribute power back to the people. As a matter of fact, it introduces a new power dynamic between those who possess extensive technological literacy and those who do not.