Islamic finance is becoming popular globally. Regardless of one's religious views, it is commonly accepted as a source of funding on a worldwide scale. The evolution of Islamic banking used to be slow. Islamic finance was first mainly concerned with transactions and contracts adhering to Shariah. The emphasis now is on unifying legal views and Shariah governance. Islamic banking abides by Islamic values such as the restriction on open speculation, usury or interest, gambling, and uncertainty.
The Islamic Cooperation Organizations are growing more and more interested in blockchain technology. A number of Islamic financial institutions want to embrace blockchain technology to take advantage of its features. Both the public and private sectors are using blockchain technology. It comes as no surprise that the government is showing interest in digital currency.
The Islamic economics could be strongly influenced by blockchain technology. The blockchain in Islamic finance and banking will undoubtedly help Islamic banks and financial institutions succeed. The Islamic banking system will be able to function more effectively without having to worry about interest rates or other such issues.
What is Blockchain?
In the simplest form, a blockchain is a network of connected hubs that stores verifiable data in units called blocks. A common starting point for internet conversations is to compare a blockchain to a Google Spreadsheet, where different writers can add to it thanks to the locking mechanism.
Blockchain can change many data-focused aspects of everyday life, including banking and payments as well as big data and smart contracts. Bitcoin is based on blockchain technology, however, the terms blockchain and bitcoin are not interchangeable. Blockchain technology has applications that go well beyond those of bitcoin and other cryptocurrencies.
Blockchain and Islam
Islamic finance uses economic and financial resources to address the material and social requirements of every individual in the community as an alternative and humanitarian method of financing. Funds are allocated to impact-oriented real-world business operations. The fundamental elements are the asset-based structure of Islamic financial solutions and the equity-based nature of risk and profit-sharing. Expanding financial inclusion and drawing prospective capital from Islamic capital providers and sources are essential roles that each of these financing groups must play.
Blockchain holds a lot of potential for use in Islamic banking because of its key features:
Accessibility: Access to permissioned networks is restricted to users who can be identified.
Once the data is entered, the digital LEDGER cannot be altered.
Real-time information: When information is changed, it is updated simultaneously for everyone on the network, which reduces the likelihood of fraud and makes it simpler to spot.
The foundation of Islamic finance is Shariah, the Islamic law that regulates many aspects of Muslim life, including law, politics, economics, banking, and trade. Shariah-compliant financing aspires to change financial operations and enabling legal frameworks to conform to Islamic law.
Major Shariah financial themes include a cap on interest, a ban on unpredictability, conformity to risk- and profit-sharing, encouragement of ethical investments that benefit society and do not contravene Qur'anic prohibitions, and tangible asset-backing.
The following principles are included in Islamic banking finance:
Not allowed to engage with or receive interest
Investments in businesses dealing with anything, including alcohol, gambling, drugs, or anything else, are illegal.
Anything else that the Shari'ah considers to be unlawful is viewed negatively.
Capital must be used to serve social and ethical purposes in addition to unconstrained, pure profit.
Blockchain technology and smart contracts are becoming increasingly popular in business and politics due to their strength and potential.
Is Blockchain & Islamic Finance harmonious with each other?
The answer is "yes,". Islamic banking is about enforcing moral behavior's, and blockchain is about "coding" those behaviors onto a whole AI system to make sure they are carried out on their own and without the help of a third party. As a result, it develops into a platform that "self-performs," "self-corrects," "self-enforces," and "self-regulates". Blockchain is based on the core principles that Islamic finance considers as the basic foundation. Hence, the two support each other indefinitely.
Blockchain technology offers a more secure and cutting-edge method of conducting business in accordance with Islamic Shariah. All users can see and understand transactions made on a blockchain. Additionally, smart contracts can be a useful tool in all financial operations, and creating a smart contract can take care of supervision and regulation.
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