بِسۡمِ اللهِ الرَّحۡمٰنِ الرَّحِيۡمِ
This article is for educational purposes exploring the case for the adoption of Bitcoin as a long-term strategy to store wealth. Bitcoin is unique from other cryptocurrencies and the case cannot be applied to any other currency.
Introduction
The world of finance has undergone a seismic shift with the advent of Bitcoin, a decentralized digital currency that has captured the attention of millions. While its potential benefits are widely discussed, its compatibility with Islamic principles has sparked intriguing debates among scholars and practitioners. This article delves into the arguments for Bitcoin's Sharia-compliance and its potential to offer financial freedom to Muslims from the debt-riba based fiat currency system.
Addressing Fundamental Flaws in Traditional Finance
Traditional fiat currencies, controlled by central banks, have inherent limitations. Their susceptibility to inflation, devaluation, and manipulation erodes their value over time. Moreover, the centralized nature of these systems allows for censorship and control, hindering financial freedom as we have seen the USA "freeze" $7 billion belonging to Afghanistan's Central Bank in 2021 and $300 billion were frozen in 2022 belonging to Russian central bank.
Bitcoin, on the other hand, offers a decentralized solution. Its fixed supply and transparent blockchain technology ensure that it cannot be inflated or manipulated. This aligns with Islamic principles that discourage practices like riba (interest), which involves charging interest on loans.
The critique of monetary interest highlights its adverse ethical, economic, and societal implications:
- Ethical Concerns: The practice of charging interest is deemed morally and legally unjustified, as money, unlike tangible goods, does not deteriorate with use. That is to say, declaring interest being akin to rent charged on money lent does not make a convincing case.
- Economic Impact: Interest-driven systems prioritize short-term profits over long-term sustainability, exacerbating economic inequality and environmental degradation.
- Erosion of Societal Values: By incentivizing greed and impatience, interest undermines societal welfare and hinders long-term strategic planning.
- Historical Context: The steady decline in interest rates over centuries is seen as indicative of societal progress toward sustainability and lower time preferences.
- Systemic Obstacles: Efforts to address financial issues often target symptoms rather than addressing the foundational role of interest, impeding transformative reform.
Promoting systems that emphasize sustainable, equitable, and long-term growth is proposed as a solution to these challenges.
A Shariah-Compliant Store of Value
Bitcoin's scarcity, durability, divisibility, and fungibility make it an attractive store of value. Its decentralized nature eliminates the risk of counterparty risk and government intervention. This is particularly important for Muslims who seek to preserve their wealth in a Shariah-compliant manner.
- Sharia Compliance: Bitcoin resists inflation and prohibits artificial creation (anti-riba), making it highly Sharia-compliant.
- Sound Money: Its durability, divisibility, fungibility, decentralization, and scarcity make it akin to gold as a reliable store of value and medium of exchange.
- Low Time Preference: Bitcoin promotes self-discipline and future-focused investment, reflecting Islamic principles of sustainable living.
- Financial Independence: It offers freedom from government control and protects marginalized communities in unstable regions.
- Anti-Inflationary and Anti-Oppression: Bitcoin’s fixed supply shields wealth from inflation and economic manipulation, such as sanctions or reserve freezes.
- Decentralization and Security: Its blockchain-based system enables self-custody and reduces reliance on intermediaries, increasing user control.
Debt Slavey
Developing nations have accepted large infrastructure loans from institutions such as the IMF and World Bank based on overly optimistic economic projections. The loans are based in the US dollar so the countries have to buy dollars from USA in exchange for their precious resources. American corporations gain lucrative contracts for such economic projects.
These projects often fail to deliver promised gains, trapping nations in debt cycles and compelling them to align with U.S. political and economic agenda. In exchange for debt relief, countries are pressured to privatize state-owned assets or grant U.S. corporations favourable access to natural resources, undermining the sovereignty and local control.
Pakistan has approached the IMF more than 20 times since its independence, with conditions often requiring structural reforms that have faced domestic criticism. During the 1960s and 1970s, U.S. aid was tied to Cold War alignments, while post-9/11 aid was linked to counterterrorism cooperation. The conditionality of loans and aid has exacerbated Pakistan's economic challenges, including inflation, unemployment, and a reliance on imports. Additionally, these conditions often limit the government’s ability to make independent decisions on economic and social policies. Foreign companies have often been granted concessions to extract Pakistan’s natural resources, sometimes under terms that critics say disproportionately benefit the corporations rather than the local population. Internal governance issues, corruption, and mismanagement have also played a significant role in Pakistan’s economic problems.
Financial Independence and Empowerment
Bitcoin empowers individuals by allowing them to take control of their finances. It enables peer-to-peer transactions without the need for intermediaries, reducing transaction fees and increasing efficiency. This aligns with Islamic principles that encourage self-reliance and economic justice.
A Path to a Just and Equitable Financial System
Bitcoin's potential to disrupt the traditional financial system and promote financial inclusion resonates with Islamic values. By challenging the status quo and offering a more equitable alternative, Bitcoin could contribute to a more just and prosperous world.
El Salvador, a little-known country in Central America, adopted Bitcoin as legal tender in 2021 when its debts were $25 billion and it started to accumulate Bitcoin. In 2022 when El Salvador sought further loans the IMF urged the country to strip Bitcoin of its legal status, El Salvador declined to do so. El Salvador has accumulated a substantial number of BTC. As BTC price approaches $100,000 El Salvador will be in position to pay off all its IMF loans, something which has never happened before, most countries end up with a rolling debt.
Conclusion
The case for Bitcoin permissibility in Islam cannot be done without considering the current financial system we have in place. While the debate on Bitcoin's Shariah-compliance continues, Bitcoin's price is about to hit $100,000. Bitcoin is considered by some experts to be the most Shariah-compliant solution to sound money available addressing the shortcomings of traditional finance. Its decentralized nature, fixed supply, and resistance to manipulation make it a compelling option for Muslims seeking financial freedom and security. It must be stressed that only Bitcoin alone satisfies the criteria for sound money as a store of value. Virtually all other cryptocurrencies fail the test. Money is not there to be used to make money as many cryptocurrencies are, Bitcoin is seen as money in itself which holds its value overtime with a fixed supply and minimal inflation. As the technology matures and regulatory frameworks evolve, Bitcoin may emerge as a significant force in the global financial landscape, offering a path to a more just and equitable future.
Dr. A. Hussain, Nov. 2024