Islamic Bitcoin?

Posted: December 18, 2014 in Islamic Finance, Paper money
Tags: , , , , , ,

Islamic peer-to-peer cryptocurrency


My appreciation goes to a blog reader for forwarding this link;

Bitcoin for Islamic Finance

I am personally highly dubious of any thought of assessing Bitcoin or any crypto-currency as sharia compliant. However the article raises some fair points, in my humble opinion. One argument would be that this is still a medium created by Man, unlike a real commodity.

Moreover, given the impact of the ‘Sharing Economy’ now taking hold via peer-to-peer websites, we need to ask whether money as we know it is essential to all transactions anyway. More on this in an upcoming post…

Make up your own minds, send me your comments


  1. I think there is much more to bitcoin than simply trying to see if it is a good currency or not. The underlying technology behind bitcoin is the blockchain, and the blockchain is a scientific breakthrough (it solved the byzantine generals problem of computer science). With bitcoin, we now have digital scarcity without any central authority managing it, and this hasn’t happened until bitcoin came along. This technology can be used as a platform for building financial tools that do not rely on any middle men such as banks. Basically, the blockchain is a giant distributed transparent ledger that also enables programmable money. Consider this peer-to-peer lending (and riba free) example I came up with:

    A house buyer would enter into a contract with a lender to buy a house. The buyer maybe puts down 20% and the lender puts down 80% and the house is bought. The buyer gets to live in the house and pays rent on the 80% the lender owns while also buying it slowly over time until the buyer owns the house 100%. The lender makes a profit by charging rent on the portion he owns while the buyer pays off the house. And the lender doesn’t even need to be a bank – the funds could be raised peer-to-peer, so it could be that maybe 20 or so people initially own the 80% that the buyer buys overtime. Now here is the really interesting part: The house OWNERSHIP and the LENDING CONTRACT can be easily tracked and ENFORCED on the blockchain itself without any banks managing it. Every time a payment is made through the blockchain, the % of ownership is changed as well. If payments fail to be made, the blockchain will automatically give more ownership of the house back to the lender. We can make self enforcing contracts without any management from any banks or companies.

    This can be expanded to include tracking ownership of assets such as land, houses, cars, businesses, and stocks on a transparent blockchain instead of having to trust banks and governments managing all that. Another example is – instead of having papers that show you own a certain electric car, the blockchain will show only a certain digital key is the owner and the car will only turn on for whoever has that key.

    Because of bitcoin and blockchain technology, I believe there can be new age of true Islamic finance that is truly peer-to-peer, and does not rely on any banks whatsoever.

    • ribanomics says:

      Indeed, transparency and peer-to-peer are hugely welcome developments, however it depends on how people harness this benefit.

      Nothing is uncorruptable in this world. At the moment the technology which keeps crypto-currencies alive is difficult to manipulate and there are a level of controls around this, but will this stand the test of time and most importantly, it remains to be seen, WHO is actually behind the curtain of crypto-currencies. I find the lack of indentity slightly alarming, for how can we be sure this development isn’t being co-opted somehow?

      The transaction you outline could be plausable, however it will depend on whether parties conducting business will insist the repayment include any sort of mark-up or applied compound rate to the principle which will match the ‘money now for more money later’ ribanomic model. If it does not, it will not make any profit (which is fine under islamic principles) and few parties would be keen to make use of it…and there we have the same conundrum which gave birth to ‘Islamic Finance’ how do we make money from something which is not pure, but structure it in a way that gives the illusion of purity?

      • I agree with you that more time is needed to ensure the integrity of the bitcoin technology, but asking WHO is behind bitcoin isn’t really the correct question to ask – that is because Bitcoin is a Decentralized protocol, meaning it only is meant to work when there is no central authority running it (that is the breakthrough that was developed which is driving the all the interest in bitcoin). Basically, the answer to WHO is behind bitcoin is EVERY SINGLE USER OF BITCOIN. Bitcoin is also Open Source, meaning everything about bitcoin is available to anyone and everyone who wants to check it, verify it, or try to hack it. There has been no successful attempts to hack bitcoin itself (not to be confused with certain bitcoin companies getting hacked). To get an idea of the ‘complete’ transparency in the bitcoin system, check out websites such as – here you can see all bitcoin metrics and watch all the transactions happen in real time. Exciting stuff!

        The transaction I highlighted in my first comment was merely an example of what can be possible on a decentralized system. Any variation will work. It is completely open to any type of contract between the parties as they see fit. Anything that can be programmed will work, because bitcoin is programmable money, the likes of which have never existed before.

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