Home BusinessAnalysis NFTs in Lebanon: Just a craze or a promising opportunity?

NFTs in Lebanon: Just a craze or a promising opportunity?

As trust in traditional banking declines, financial preservation using digital methods are starting to be cooked up

by Sarah Hourany

In periods of economic uncertainties, people look for safe havens to preserve the value of their money and assets, and the choices of investors during the current global and local economic crisis has proven no exception. Be it cryptocurrency or Non-Fungible Tokens (NFTs), a significant number of individuals have turned to digital markets to curtail the repercussions of a crippling recession.

The picture in Lebanon, however, has been characterized by one major obstacle blocking NFTs development. This summer, Lebanese artists were banned from the world’s largest NFT market OpenSea, headquartered in New York, dealing a blow to the sector and artists like Ralph Khoury, a Lebanese NFT artist known as ‘Ginger Potter’. Following the unexplainable prohibition, Khoury said that many Lebanese artists resorted to virtual private network alterations to access OpenSea’s website. Shortly after, their accounts were deleted and their collections removed. These sudden restrictions prevented the artists from reaping revenues and harmed their relations with their collectors, as their NFTs vanished from the blockchain.

Such barriers have frustrated the growth of the young market in Lebanon, albeit globally, it also remains a novel field. Is it a sound investment? Studies and data have yet to prove it.  Nonetheless, some facts are undeniable: users across the globe spent an estimated $44.2 billion worth of NFTs in 2021, up from $106 million in 2020, according to the blockchain data company Chainalysis’ latest market report, almost amounting to the size of the global fine art market. In Lebanon, the NFT is well-adopted as per experts, although there is an absence of available concrete figures to showcase it. On the other hand, cryptocurrencies’ adoption is increasing with volume hitting $26 billion, placing the country second in the region behind Turkey ($132 billion) and ahead of the United Arab Emirates (UAE) with $25 billion, as per a recent report by PwC, the global accountancy firm. 

A primer on NFTs

NFTs are a type of cryptocurrency that can store data on blockchains, specifically Ethereum, and differ from classical cryptocurrencies, such as Bitcoin, in their fundamental features. In economics, ‘fungibility’ refers to the interchangeability of a good or asset with other specific ones of the same type. For instance, currencies, Bitcoins and commodities are fungible, which allow them to serve as a medium of exchange, facilitating global trade. Explained simply, a $10 note can be exchanged with two $5 notes or with a product worth $10 in the market.  In contrast, a non-fungible token is not intrinsically substitutable with other digital assets. This enables it to depict something or someone in a unique way. To be more specific, under NFTs, a creator can easily demonstrate the existence and ownership of digital assets including videos, photos, and audio files; itself a major step towards more robust intellectual property protection. As a matter of fact, pre-NFT, digital content was accessible either legally on free online platforms such as Google Images or YouTube, or illegally on black market streaming sites, thereby placing their authenticity in question, and making them vulnerable to replication.

According to various research papers published in renowned business journals, NFTs have three characteristics which enable them to resolve the problem of original ownership in digital markets.

Firstly, NFTs are non-interchangeable: each NFT is connected to a digital or physical asset indicating the value, proprietorship, trading rights, and other specifications. Secondly, NFTs are immutable; meaning that they cannot be changed or forged, given that they are stored on a decentralized network of computers and algorithms where they go through a specific validation and authentication process. As such, the blockchain verifies that each NFT is original and unique and once its information is recorded, ensures that it cannot be modified. Thirdly, NFTs are transparent in the sense that their properties and ownership are clearly visible to all parties.

Yet, some critics remain skeptical about the uniqueness of NFTs; there could be many similar NFTs copied from an original one, pretending to be novel. But for Mohamad Sheet, product specialist at Oasis X, a Dubai-based NFT marketplace and creator studio, these arguments are not convincing: “If you copy a Louis Vuitton bag, it doesn’t make it original. In the real market, it will cost you time and energy to verify its authenticity. In the NFT world, the issue is much simpler as blockchain technology makes it easy to verify ownership.” Indeed, traceability is a major characteristic tied to blockchains. “Smart contracts provide collectors with all the details related to the NFTs, so if someone takes a screenshot of a certain creation it would be easy to know which file came out first,” Najib Khanafer adds, Sheet’s colleague and co-founder of Oasis X.

Another distinguishing mark of NFTs are the royalties secured to the original creator whenever a NFT is traded or exchanged. This is an appealing feature as artists normally do not receive future earnings after their art is first sold. “The continuous monetization of the NFTs is one of the attractive aspects for creators, especially that art appreciates with time,” Khanafer says.

For Khoury, the Lebanese NFT artist whose ‘Ginger Potter’, moniker was acquired in part from friends and in part from his round eye glasses likened to those worn by the book character Harry Potter, NFTs provided an opportunity to showcase his talent, away from traditional galleries that were either unreachable or limited when it comes to art genres. Not only did it enable him to generate money during the worst economic downturn in Lebanon’s recent history, but it also offered him a passive income from these royalties. According to Khoury, who has been creating NFTs for nearly a year, his fellow Lebanese NFT artists are generating several thousands of dollars monthly, a remarkable number given the current average income in the country.

A recent blow to the market

The recent ascendancy of interest in NFTs by Lebanese digital artists is what makes the sudden exclusion of several individuals from a well-known marketplace disappointing. “The situation with OpenSea is very unfortunate and unfair for many artists and traders that found themselves banned overnight and their accounts deleted,” explains Nagham Hassan, the founder of Bintcoin, a platform which disseminates information about Web3 in the Arab region. “It is especially disappointing that users were not given any advance notice of these measures.”

Khoury believes that the ban is political, given that users from other countries such as Cuba, Syria and Iran were subject to similar restrictions. This is a view shared by Hassan: “While blockchain is decentralized and permission-less, service providers like NFT marketplaces are still very much centralized companies subject to government oversight and political agendas.”

Several Lebanese artists reached out to the platform for clarification but received no response. Although, a statement from an OpenSea spokesperson published on Cointelegraph, a digital media dedicated to covering crypto, blockchain and Fintech issues, said that the marketplace restricts users based on the US government’s sanctions list. “Our terms of service explicitly prohibit sanctioned users or users in sanctioned territories from using our services. We have a zero-tolerance policy for the use of our services by sanctioned individuals or entities and people located in sanctioned countries. If we find individuals to be in violation of our sanctions policy, we take swift action to ban the associated accounts.” 

NFTs in Lebanon: a hidden opportunity?

Irrespective of questions over the ethical implications that politically motivated sanctions of digital artists might raise with any advocate of artistic freedom, Khanafer says that the local market for NFTs boomed despite Lebanon’s economic crisis. People were looking for alternatives to store and preserve their money and assets, in a period when trust in the banking system was completely eroded. As a matter of fact, a PwC report titled ‘The UAE Virtual Assets Market’ issued this year suggests that the key reason behind the high rate for crypto adoption in Lebanon is value preservation.

Ginger Potter’s ‘Complicated’ appears to capture Lebanese finances

Besides, the popularity of NFTs was gradually growing in early 2020 before reaching its peak the following year. An NFT created by the artist Pak, called ‘The Merge’ sold for a record sum of $91.8 million in December 2021. Another piece, titled ‘Everyday: the first 5000 days’ was sold for $69.3 million at auction by Christie’s the same year.

Nonetheless, many factors still stand in the way of the sector. In addition to the political complications that reduce the possibility of establishing international cryptocurrency companies in Lebanon, given the operational difficulties they could face from a legal standpoint, the access to internet and technology is also a major drawback, Khanafer says.

The internet infrastructure of Lebanon improved during the 2010s, compared to the dial-in days of the 1990s and the underpowered and overpriced conditions of the 2000s. But arguably it is far from complete. The Economist Intelligence Unit’s Inclusive Internet Index report issued in 2022 pointed out that Lebanon’s main weakness continues to stem from its policy environment. It ranked Lebanon in 72nd place out of 100 countries, regressing from 60th place in 2020. The index is based on four criteria: availability, which evaluates the quality and range of the existing infrastructure required for access and levels of internet usage; affordability, which mainly measures the cost of access compared to income levels; relevance, which assesses the existence and extent of local language and relevant content; and readiness which studies the capacity to access the internet, including skills, cultural acceptance, and supporting policy.

Another impediment concerns the access to the type of information investors need, according to Khanafer. While experts attend conferences and events, build connections, and receive accurate information, not everyone is included in such opportunities. Another challenge, Khoury says, is access to cryptocurrencies. Lebanese banks do not permit cryptocurrencies, adding challenges and even discouraging people, at the same time creating ripe conditions for a crypto black market.

The absence of regulatory authorities and governing bodies is also one of the major obstacles at a time when nearby countries, particularly the UAE, have been fostering a welcoming environment for crypto and NFTs.  Earlier this year, the Government of Dubai enacted Law No. 4 of 2022 on the ‘Regulation of Virtual Assets’ and set up the Dubai Virtual Assets Regulatory Authority. The establishment of such a legal framework will likely set the scene for entrepreneurs and investors lured by blockchain technology.

“There is no noteworthy effort focused on creating regulatory clarity around NFTs in Lebanon at the moment,” Bintcoin’s Hassan says. “Additionally, I doubt that the regulation of digital and virtual assets is at the top of the country’s priority list.” Investors and entrepreneurs are indeed looking for countries that allow them a clear and fast framework to set up business. Hassan also mentions how the Lebanese are naturally technical and business savvy people, who would benefit if given the opportunity. She recommends that Lebanese policy makers set clear definitions and laws for digital assets and cryptocurrencies by collaborating or consulting with experts in the industry, as they can give adequate guidance to set laws which can govern the space without hindering innovation.

A Promising Outlook?

According to Hassan, NFTs are viewed by many as speculative investments.  As such, they usually suffer in risk-off environments where preferences shift to assets that are perceived as safe, or exiting a market altogether. NFTs are especially vulnerable as their non-fungible nature means that they are relatively illiquid in the sense that they cannot be easily converted to cash, she adds. 

Hassan says that NFTs, as a technology, is an excellent investment as it is already disrupting the entertainment, gaming, and ticketing industries, to name a few. Some of the biggest brands are also launching loyalty programs and special collectibles in the form of NFTs. However, NFTs as a speculative asset, is a riskier investment as the performance of the asset will depend greatly on the team behind the project. She warns against projects originating from anonymous teams.

Despite all the hurdles, those interviewed by Executive believe that the outlook for NFTs in the country is promising. The Lebanese public is increasingly interested in the NFT world, with more people attending NFT club virtual or physical meetups and joining Telegram groups. OasisX is currently approaching Lebanese celebrities, news agencies and companies who according to OasisX operators, all showed interest in collaborations. Undeniably, NFTs are not limited to art but are increasingly used for business purposes. Ticketing, marketing, memberships, digital collectibles, token-gated commerce and gaming are sectors expected to witness further development. 

In a country struggling to preserve its decaying infrastructure, NFT development may seem far-fetched, but any concrete reform – when you have skilled human capital – would have a multiplier effect. After all, you only need a mobile phone and internet access to be part of the NFT world.

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Sarah Hourany

An economist, journalist and social entrepreneurship expert.

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