20-Jul-2021
written by: Andrew Abou Khater
Introduction
Bitcoin is a currency that was created in 2009 by an unknown person using the alias Satoshi Nakamoto.
Bitcoin is a decentralized currency, meaning there is no official authority, company, website or even symbol. Rather, individuals appropriate the protocols created by Satoshi, which are available for free download on the Internet and have created a variety of digital platforms to send, receive and exchange Bitcoins.
Furthermore, Bitcoin transactions are made with no middlemen which means no banks are involved; people can send bitcoins to each other using mobile apps or their computers. It is similar to sending cash digitally.
In addition, Bitcoin can be used to buy merchandise anonymously. International payments are easy and cheap because Bitcoins are not tied to any country or subject to regulations. However, much of the hype is related to making money by trading it as Bitcoin’s value is determined by market dynamics, namely a predictable supply and varying demand. In 2017 Bitcoin prices skyrocketed into the thousands.
Today, users can download “Bitcoin wallets” from a number of independent app developers, which enable all transactions. Each wallet is assigned an alphanumeric code but has no personal information associated with the owner. Even though each Bitcoin transaction is recorded in a public log, names of buyers and sellers are never revealed, only their wallet IDs. While that keeps Bitcoin users’ transactions private, it also lets them buy or sell anything without easily tracing it back to them.
Moreover, using these codes, individuals can send and receive Bitcoins across the network. All Bitcoin transactions are logged on the Blockchain, which is a public ledger accessible to anyone with an Internet connection.
Many marketplaces called “Bitcoin exchanges” allow people to buy or sell Bitcoins using different currencies. Coinbase is a leading exchange, along with Bitstamp and Bitfinex. But security can be a concern: Bitcoins worth tens of millions of dollars were stolen from Bitfinex when it was hacked in 2016.
I- Bitcoin effect on global economy:
1- Shifts in Global Investments
Many investors are now adding cryptocurrencies, particularly Bitcoin, into their portfolios. This is most likely because Bitcoin allocation raises their chances to improve portfolio upside.
On the other hand, some experts are concerned about a potential Bitcoin collapse that can spark a global financial crisis. However, at the end of the day, investors see cryptocurrencies as a hedge against inflation.
2- Separates Transactions from the Dollar
Cryptocurrencies do not require any connection to the U.S. dollar. The involved parties of a financial transaction are given another avenue to participate in the global economy while, at the same time, circumventing U.S. economic policies.
Even though it might seem like a threat to the government because the U.S. dollars act as the reserve currency for the global economy (which is the primary source of U.S. global power), it enables more international transactions.
3- Eliminates the Need for Middlemen
Bitcoin as a whole is inherently designed to allow peer-to-peer electronic transactions between counterparties without the intervention of any third party. It does not require an intermediary, or a go-between, unlike traditional currencies. Transactions are validated in a decentralized fashion.
This fact has made banking institutions anxious, as it eliminates the need for their service. What is more, transacting through cryptocurrencies is much quicker as it does not have to pass through multiple hands.
4- Encourages More Overseas Transactions
Since lots of people living in countries around the world with weak economies still do not have a bank account, Bitcoin comes in handy to engage them with the global internet economy.
That way, people who live in typically less developed countries have a chance to connect with the internet economy. All that is needed is a digital wallet to make transactions anywhere in the world.
In the last three months of 2020, each day saw an average 287,492 confirmed Bitcoin transactions worldwide.
The transactions are fast, transparent, confidential, and secure. Also, the transaction fees may be much more affordable than in conventional payment systems (credit or debit cards).
5- Reduces High Reliance on Fiat Money
As a decentralized currency, Bitcoin is free from any economic and political issues that can often affect traditional currencies. That is where Bitcoin is designed to be a digital currency that can be an alternative for authorized or fiat money.
Today, customers have become more reliant on digital transfer (as it is convenient in the sense of transaction speed) as a handy means to pay for products and services. Using Bitcoin as a payment method can reduce the reliance on traditional or authorized money.
What is more interesting is that the people who have already dabbled in Bitcoin believe that their virtual cash enjoys the same level of security as authorized money.
6- Regulation of Bitcoin
Now that Bitcoin has become ubiquitous, both national and regional authorities prompt to grapple with their financial regulations. In this matter, central banks are working hard to put this ad hoc financial system under control. It can lead to laws specifically addressing this cryptocurrency and the speculative bubble that Bitcoin will potentially cause.
Different countries have different approaches to cryptocurrency, some of them ban any or all activities involving Bitcoin, such as Algeria, Bolivia, Morocco, Nepal, Pakistan, and Vietnam.
In contrast, some others use it as a means of payment. For example, in the United States of America, Canada, Australia and the European Union, cryptocurrencies, including Bitcoin, are accepted as a means of payment even by government agencies.
7- Removes Barriers to Entry and Helps New Markets Emerge
Bitcoin established a global decentralized transaction network that eliminates the necessity of any centralized institutions for currency issuance and settlement. In this regard, it has opened the door for a new kind of market and opportunities where no authority or individual controls the money market.
So, rather than persuade the venture capitalists, banks, and other financial institutions for their prospective project, entrepreneurs can bypass the regulations and authority through Initial Coin Offerings (ICO). With ICO, startups and small businesses around the world can sell some of their coins to get their business off the ground.
8- Opens Access to a Credit System
Bitcoin enables unbridled access to a reliable credit system since it is a type of unregulated digital currency that is based wholly on data. If the price remains stable for an extended period, it will be able to bridge people who are isolated from global merchants continuously.
Thus, it will open new markets as well as new opportunities that can contribute to sustainable and inclusive growth in the global economy. What is more interesting is that Bitcoin does not require any pricey fees for transactions, which makes it much more appealing for its users and people who are considering using it.
9- Starts New Era of Crowdfunding
Talking about Bitcoin and cryptocurrencies is not complete without mentioning ICOs. In 2017, it was the talk of the technology town as it has become the leading crowdfunding method for blockchain-based startups. This new method of crowdfunding allows companies or organizations to raise capital in the form of cryptocurrencies.
What happens in ICO crowdfunding is that the investors buy cryptocurrency coins that represent shares in the project, just like how the stock market works. Hence, the shares have the potential to increase in worth if the company does well. It is referred to as crypto equity crowdfunding.
This new era of crowdfunding is crucial in helping inventors, entrepreneurs, and creators improve the world, including creating a sustainable economy.
10- Changes in the International Remittances Industry
Overseas remittance drives economic growth in emerging economies. Indeed, many people around the world work overseas and regularly send money to their families and loved ones back home.
At present, this money has to be managed by intermediaries, including banks or other money transfer services that charge high costs for transaction fees. Also, the transaction process is so slow and takes several days before the receiving party can access the funds. In this matter, Bitcoin comes as a game-changer.
Bitcoin can instantly be transferred across the globe securely. It makes the overseas remittance process a lot easier, cheaper, and more secure. Today, at least 11 Bitcoin providers have already started foreign remittance services, including Ribbit, BitPesa, and Abra.
11- Environmentalism
Every coin has two sides; so does Bitcoin, so to speak. Other than the direct and straightforward impact that Bitcoin has on the global economy, it also impacts the environment in a not-too-subtle way.
Bitcoin mining requires a sophisticated software and hardware infrastructure system which reportedly accounts for a significant deal of energy usage, equaling about 0.21% of today’s global supply.
II- Lebanese Regulations
The Bank of Lebanon (the “BDL”), which is the country’s central bank, has according to the Law 133 of 1999 as amended, regulatory and oversight powers over payment systems and instruments. The role of the BDL is regulated by the Code of Money and Credit, which dates from 1963 and has been amended several times.
Its powers over payment systems have been established by Law 133/1999, which complements BDL’s mandate pursuant to Article 70 of the Code, and empowers the BDL to: a) develop and regulate payment systems, especially with regard to Automated Teller Machine (ATM) and payment cards; b) develop and regulate payment transfers, including electronic transfers; and, c) develop and regulate clearing and settlement for both payments and financial transactions.
Based on these powers, the BDL adopted various regulations, called Basic Decisions, on systems and instruments, with a special focus on electronic means and on the standards that financial institutions need to comply with when offering services by electronic means.
The main provisions of the Basic Decision 7548 of 2000 (the “Basic Decision”) allow any financial activity to be performed by any of the mentioned entities by electronic means; however, there are specific restrictions on mobile devices as a transaction channel and e-money services. Article 3 of the Basic Decision explicitly states that banking operations through mobile phones is restricted to operations between banks and their customers, whereas issuance of electronic money is strictly forbidden. Only intra-banks transfers are allowed through mobile devices.
Moreover, by a Decree of 2000, the issuance and use of “e-money” is prohibited for Lebanese financial institutions, exchange institutions, and fine tech to use bitcoin and in general cryptocurrencies. As for private citizens, the situation is not as clear.
Furthermore, the BDL does not recognize the cryptocurrency as means of payment, and has issued a Bitcoin warning, the first such warning in the region. The warning was issued on the 19th of December 2013 and outlines a number of risks associated with digital currencies, many of which we are all too familiar with.
The BDL warns of several risks:
• Transactions made through unregulated networks cannot be guaranteed and losses cannot be recovered.
• Unauthorized and incorrect transactions using digital currencies are irreversible.
• The highly speculative nature of digital currencies and the fact that they are not guaranteed by any central bank makes them very volatile.
• Digital currencies can be used for criminal activities, including money laundering and terrorism.
Since Lebanon is in a rather tough neighborhood, the terror warning makes sense, which cannot be said of similar warnings issued in many other jurisdictions.
The bank continued, stating that:
“As a result, and to avoid dangers and losses that might result from using e-money, the central bank of Lebanon warns against purchasing, keeping or using e-money.”
However, it should be noted that on July 2017, BDL reiterated its position, while claiming that it was considering the creation of a digital currency backed up by the Lebanese Pound. The BDL governor specified back then that: “We understand that cryptocurrency will play a primary role in the future. But before this BDL has to take the necessary measures and develop a system of protection against cybercrime”.
Lately, the governor of BDL, announced the launch of a new 100% Lebanese cryptocurrency in the near future. such currency will be a “virtual Lebanese pound” destined exclusively for local use, which goals is to ease payment methods, to implement a technological transformation of financial institutions and to lower the costs borne by consumers. However, such cryptocurrency will remain regulated by the BDL, in a way to control money laundering and cyber security.
Conclusion
Lastly, no one knows what will become of Bitcoin. It is mostly unregulated, but some countries have begun weighing regulations. Governments are concerned about taxation and their lack of control over the currency.