Bitcoin: The new dinar
For many years Muslims have bartered and traded using gold and silver. Gold dinars and silver dirhams are still viewed as the ideal form of currency. However, with the emergence of fiat “paper” money (dollars, pounds, rands, etc.) the gold dinar and silver dirham increasingly become obsolete as fiat money was simply much easier to use. Electronic payment systems that allows you to transact in the comfort of your home further solidified fiat based currency as the dominant means of transaction.
The last few years have seen the emergence of new technology in the financial sphere. One of the most salient developments is blockchain based cryptocurrencies such as bitcoin. Proponents of bitcoin claim it has many benefits over the current financial system based on fiat money. One aspect that hasn’t been given sufficient attention is whether a crypto currency based financial system will bring us closer to an ideal Islamic financial and economic system?
Before I continue, I’d like to address the elephant in the room: is bitcoin halal? Naturally, with a new technology such as bitcoin there will be different stances. Suffice to say that there are numerous well established muftis who have given it their stamp of approval. Despite the reluctance of some ulama (scholars of Islam), I feel that for a myriad of reasons a bitcoin based financial system will bring us closer to an ideal Islamic financial system. My reasons include the following:
1. Many cryptocurrencies like bitcoin are able to withstand inflation. In simple terms, inflation is the process of money losing value. Over time, the same amount of money can buy less goods. Inflation is one of the major reasons why lenders will expect interest on their returns. A bitcoin based monetary system will allow borrowing to take place without the need for interest.
2. Bitcoin, and many other cryptocurrencies, are decentralized. This means that no single authority is in control. This is closer to the Islamic conception of not giving a few individuals control over the wealth of society.
3. Public, distributed ledgers create a greater sense of trust in the system. This allows for easier circulation of wealth.
4. Many cryptocurrencies like bitcoin allow for greater privacy. This would be a major benefit for activities such as charity as we are encouraged not to publicize our charity.
5. Beyond bitcoin many cryptocurrencies allow for tokenisation. This could theoretically lead to an easily traded digital dinar or dirham backed by gold and silver.
Allah knows best