The Islamic concept of finance is built on a set of basic principles that prioritize honesty, fairness and accountability in trade and transactions. As such, Islamic finance seeks to support fairness, transparency and shared prosperity in economic systems. It can be said that fiat currency achieves the exact opposite of these principles, because it leads to uncertainty, speculation and inequality that punishes the poor, who earn and spend fiat currencies, and favors the rich, who invest in assets that benefit from inflation. In this background, Bitcoin emerges as a solution that is remarkably consistent with the principles of Islamic finance. This article explores why Bitcoin, with its decentralization, transparency and scarcity, represents the most Islamic form of money, offering transformative potential for the Muslim world.
The basic principles of Islamic finance include:
1. Prohibition of usury:
Interest-based lending, where money is generated without productive activity, is strictly forbidden in Islam. Usury promotes exploitation, concentrates wealth, and undermines social justice.
2. Prohibition of deception:
Transactions must be free from undue speculation or ambiguity. Clear conditions and honest practices are of paramount importance.
3. Asset-backed economy
Trade and transactions should include tangible assets or productive activities. Wealth must be acquired through legitimate means, not through gambling or speculative bubbles.
4. Risk sharing
Islamic finance focuses on equity-based partnerships where profits and losses are shared, ensuring mutual benefit and fairness in all financial transactions.
5. Justice and fairness:
Wealth distribution should serve societal needs, promote equity and reduce economic disparities.
One can claim with great credibility that the current banknote-based monetary system blatantly violates these principles. Central banks set interest rates that are supported by the entire legal system, institutionalizing usury. Money generated from debt inherently generates unearned profits for lenders while indebting others, promoting exploitation and inequality. The securities system disproportionately benefits those closest to the source of money creation (such as banks and governments) at the expense of ordinary people. This “Cantillon effect” exacerbates wealth inequality, which violates Islamic values of equality and justice.
Fiat currencies are vulnerable to inflation and depreciation due to their unlimited supply. This creates uncertainty and speculative behaviour, further destabilizing economies and harming the most vulnerable groups. Unlike gold or tangible assets, paper money is not backed by any physical good. It is merely a promise of value, eroding trust and violating Islam’s emphasis on tangible wealth backed by assets. Centralized control of money by a few institutions undermines accountability, fosters corruption, and allows governments to manipulate currencies to serve political agendas, often to the detriment of their citizens. These systemic flaws have led to financial crises, inequality, and the erosion of societal trust.
Bitcoin, the world’s first decentralized digital currency, is closely aligned with the moral and economic teachings of Islam. Bitcoin operates without interest-based mechanisms. Its decentralized nature ensures that no central authority can create money out of nothing or profit unfairly through usury. Every Bitcoin transaction is recorded in an immutable public ledger, the blockchain. This ensures honesty and accountability, and eliminates the uncertainty associated with opaque paper-based systems.
The maximum supply of Bitcoin is 21 million coins, making it a deflationary asset. Its scarcity reflects the properties of gold, which has historically been accepted as sound money in Islamic societies. Unlike fiat money, Bitcoin is not controlled by any government or institution. Its decentralized network empowers individuals and promotes justice, in line with Islam’s focus on justice and fairness.
Bitcoin is not a speculative promise; It is obtained through “proof of work,” which requires significant energy and computational effort. This tangible cost of production adds an intrinsic value that is consistent with Islamic financial principles. Bitcoin allows anyone with an Internet connection to participate in the global economy. This inclusivity is consistent with Islam’s vision of reducing economic barriers and promoting universal access to financial resources. By adhering to these principles, Bitcoin offers a viable alternative to the exploitative securities system, paving the way to a more just and equitable financial future.
Widespread adoption of Bitcoin could revolutionize the Islamic world, opening up unprecedented economic opportunities. Many Muslim-majority countries suffer from chronic inflation, eroding the value of their paper currencies and impoverishing their citizens. The deflationary nature of Bitcoin provides a hedge against inflation, preserving wealth over time. Millions of Muslims remain unbanked due to lack of access to traditional financial services. Bitcoin’s decentralized system allows individuals to securely store and transfer wealth without relying on banks, promoting economic empowerment. Muslim-majority countries are among the largest recipients of remittances. Bitcoin enables faster, cheaper and more secure cross-border transactions, reducing reliance on costly intermediaries.
By decentralizing money creation and eliminating the privileges of central banks, Bitcoin ensures a more equitable distribution of wealth, addressing the economic disparities that plague many Muslim societies. Bitcoin’s transparent system facilitates the development of Sharia-compliant financial products and services, and promotes ethical investment opportunities in line with Islamic values. Bitcoin enables countries to reduce their dependence on the US dollar and other foreign currencies, enhancing their economic sovereignty and resilience. By enabling borderless trustless transactions, Bitcoin promotes trade within the global Islamic community, encouraging innovation and economic integration across nations.
Bitcoin is more than just a technological innovation; It is a financial system rooted in justice, transparency and fairness, values deeply rooted in Islamic teachings. As the Muslim world grapples with the challenges of fiat-based economies, Bitcoin offers a path toward economic independence, financial inclusion, and societal prosperity. By embracing Bitcoin, the Islamic world can align its financial systems with the timeless principles of Islam, paving the way for a more just and sustainable future.
This is a guest post by Ghaffar Hussain. The opinions expressed are entirely their own and do not necessarily reflect the opinions of BTC Inc or Bitcoin Magazine.