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Problems of Bitcoin Development in Islamic World

26.03.2016 The money does not stink! Well, almost everybody knows this historical saying of Ancient Rome Emperor Vespasian. Getting into the essence of money is not easy. The rhetorical question “Is money indeed money?” became a topical matter after Bitcoin launching. The cryptocurrency exists in the Internet: it doesn’t have material realization, and it threatens not only authority and standard definition of fiduciary notes’ value, but their essence and necessity as well.
Modern financial system is a giant tangle of self-will and profit interests. And religious beliefs have a lot to do with actual control system. From all confessions Islam is considered as the most radical one. However, rules of treatment of money are written especially clearly. It is an interesting issue whether Bitcoin could become inherent in the Islamic world and economy.
 
Intrinsic value of the cryptocurrency

Islam places rather strict demands to material values and their equivalent, money. Currency without material realization is not accepted by the doctrine. In the Islamic world it is not traditional to create money from nowhere, yet it is a common practice nowadays.
Does Bitcoin have its intrinsic value? Will the cryptocurrency be accepted by the canonic doctrine of the Islamic world?
Let’s compare digital money with precious metals (gold, silver), which are permitted in Islam. These metals are synonyms of financial prosperity and used as currency from the earliest times.
Despite its virtuality, Bitcoin has much in common with gold and silver. It is extracted in “mines” and mining volume is limited.
 
What is Bitcoin?

Cryptocurrency is an intermediary tool for storing valuables during the exchange of goods and services. First of all, it represents a new economic standard and an analogue of typical fiduciary money.
 
Regardless the value and universality of the cryptocurrency, outstanding experts in economics, like Mohamed Ibrahim Tayel, ascertain that before its final acceptance Bitcoin should gain the confidence of canonic community. Oriental people are famous with their conservatism, so high volatility levels generate negative impact on cryptocurrency’s popularity.
 
Especially negative attitude is demonstrated by jurists from Malaysia. They note lack of a centralized control mechanism and high speculative activity. Muslim world defers to the opinion of this island country, which is one of the leaders in canonic financial sector.
 
Coincidence in opinions of experts has a real ground. Most of statements were made in the beginning of 2014 when cryptocurrency’s rate crashed.  Regardless self-righteousness of judgments they carry sprouts of constructivism. If the exchange rate of Bitcoin would be rather stable there would be developed efficient mechanisms of fighting fraud and new institutions targeted at combating online-crime, so digital money would comply with all standards of Muslim world.
 
Bitcoin and Islam – a long way to agreement

Fundamentalism is the basic difference between Islam and other religions. In Christian countries, compliance of financial activity with doctrine is not obligatory. In Islamic world, everything, including banking system activity, is carried out in accordance with strict specific rules. Money-lending is considered as a crime; loan system is based on shared acceptance of profit and losses and depends on loan purpose.
 
It should be interesting to read opinion of Charles Evans published in the Journal of Islamic Banking and Finance. The author has conducted wide-scaled researches to study relations between Sharia Islamic law and banking regulations. Actually, it was found that blockchain due to its unique flexibility is capable of adapting to specific standards of Muslim world. Bitcoin is probably the most convenient instrument for carrying out financial operations as it opens new horizons even in the conditions of strict limitations of fundamentalism.
 
Cryptocurrency demonstrates an array of advantages over fiat monetary units:
 
- No need to cash in on interest.
- Protection against artificial manipulations with volumes.
- Independent market price.
- Political risk reduction.
- Universal implemetation.
 
Despite obvious advantages, Bitcoin’s implementation in Muslim world (as well as in other sectors) is quite limited. The only precedent is the microcredit organization Blossom Finance, which is head-quartered in Indonesia. The company founded by Mathew Martin, applies the principles of mudaraba (sharing of risks and profit between an investor and a businessman according to their shares) and complies with all Sharia standards.
 
Generally, the cryptocurrency may become a universal monetary unit in Islamic countries. Religious authorities aren’t ready yet to grant Bitcoin the status of the official currency; however, they do not deny such a possibility. It is necessary to settle the volatility problem so that digital money will become very attractive for financial settlement in compliance with all specific standards.
 
Bitcoin stands a chance to become a recognized monetary unit in Muslim world market, population of which is over 1.5 milliard and grows year by year. The future of financial relations belongs to the cryptocurrency.