Cryptocurrencies and Islamic finance?

Gassner's picture

Bitcoin (https://bitcoin.org) started to make the idea of a cryptocurrency popular. What is missing so far is an intense discussion among Sharia scholars.

What makes Bitcoin unique is, that it is a) created by a computer program b) that it is created and verified by a decentralised process, the so-called 'Blockchain' technology (https://en.wikipedia.org/wiki/Block_chain_(database)), which is solving a practical problem for the first time: To enable trust and accounting without a central ledger, such as a central bank. c) that it faciliates payments quick, efficient and discreet - while the latter leads to accusation of misuse, e.g. for gaming, drugs, terror finance etc.

How it can be seen from an Islamic perspective is not widely discussed, despite it deserves the attention. What we find in search engines are some discussions and also an initiative, which calls itself a bank (https://bitcointalk.org/index.php?topic=21732.0).

Bitcoin fulfills core functions of a currency and might be treated the same way as such (see: http://lightuponlight.com/blog/fatwa-on-bitcoin-by-monzer-kahf/). The only concern, but a strong one, in my view, is the missing intrinsic value. Typically a contract in Islamic law consists of two items of value - so what other use has Bitcoin beyond payment, is there any? Even if this condition would not turn Bitcoin impermissible in the view of Islamic scholars consensus (which is not yet given), it limits its attractiveness, its capability to become a real alternative global currency.

In in the early time of Islam six currencies were named: Gold, silver, wheat, barley, dates and salt. All had value beyond its payment functions. Contemporary fiat currencies are mostly accepted due to the sovereign authority and laws imposing to pay taxes and accept it for trade. That does not apply for Bitcoin.

The underlying blockchain technology is nevertheless revolutionary, thus I thought over holding my Islamic economic class last year in Geneva, whether it could be used to combine the blockchain technology with a scalable service like data storage. Searching about this idea online showed that others already were advanced in propragating this concept; a cryptocurrency created by offering storage and using decentralised authentification via blockchain: http://storj.io/faq.html

It is about time to do serious research from an Islamic point of view on academic level. Cryptocurrencies will play an increasing role.

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