Table of contentsSummaryIntroductionThe main principles of Islamic bankingMoral and social valuesResponsibility and commercial riskIslamic banking and finance: criticisms encounteredVirtual (cryptocurrency)How it is doneThe mining process of bitcoinStep 1: Collect transactionsStep 2: Create the hashStep 3: Generate coinsFinal discussionSummaryThis article analyzes the compliance of distributed and autonomous blockchain management systems (BMS) like Bitcoin with the requirements of Islamic banking and finance. The following analysis shows that a BMS can comply with the prohibition of riba (usury) and incorporate the principles of maslaha (social benefits of positive externalities) and mutual risk sharing (as opposed to risk transfer). It concludes that Bitcoin or a similar system could be a more suitable medium of exchange in Islamic banking and finance than riba-backed central bank fiat currency, particularly among the unbanked and in small-scale cross-border trade. ladder. Say no to plagiarism. Get a Custom Essay on “Why Violent Video Games Should Not Be Banned”?Get the original essayIntroductionIslamic Banking Modern Islamic banking and its financial system dates back more than half a century, the industry is still in its infancy its beginnings. Islamic banking and finance follows the principles of Sharia law. According to Sharia law, money has no intrinsic value. It therefore cannot be exchanged as a commodity, which means it cannot be lent for a fee (interest) for a specific period of time. This particular practice is called “riba”. Another characteristic of Islamic banking and finance would be the fact that it cannot be used to invest in instruments or entities considered "haram" under Sharia law, including companies involved in the trading or sale of alcoholic beverages, businesses involved in the trade or sale of alcoholic beverages. fundraising activities, businesses involved in the sale of pork, to name a few, these types of businesses are considered “haram” or prohibited under Sharia law. Islamic Banking and Finance Islamic banking basically operates on the principle of interest-free banking, which means that there is no concept of interest on the loans given. The main logic behind this concept is the fact that the investor should not take undue advantage of the hard work of another. Banks survive on “profits” from their investments. As a result, Islamic banks provide accounts that earn profits or losses instead of interest rates. Banks use this money collected by them and invest in something that is Sharia compliant, is not haram and does not involve high risks. Businesses involving alcohol, drugs, weapons of war, etc. as well as all other speculative and high risk activities would have no exposure as they are prohibited by Sharia law. The Islamic bank therefore acts as an agent by collecting money on behalf of its customers, investing it in Sharia-compliant projects and sharing the profits or losses with them. The main principles of Islamic banking The following points are the main principles followed in Islamic banking. and finances in accordance with Sharia laws. The prohibition of interest or usury is strictly prohibited. Interest, more commonly known as riba or usury, is strictly prohibited. Money alone cannot generate profits. When theriba infects an entire economy, it endangers the well-being of everyone who lives in that society. When investors are more concerned with interest rates and guaranteed returns than with the use of the money, the results can only be negative. Ethical Standards Islamic investment must seriously consider the company it invests in, its policies, its products. it produces, the services it provides and the impact these have on society and the environment. Islam has rules and regulations on participation in financial activities. For example, in stock trading or the securities market, there must be careful scrutiny of companies' activities to determine whether they are Shariah compliant. Moral and social values ​​The Quran calls all its adherents to care for and support the poor and destitute. Islamic financial institutions are supposed to provide special services to those who need them. Beyond simple charitable donations, Islamic banks are involved in social projects. They also offer no profit loans or Al Qard Al Hasan. For example, if a person needs to go to hospital or wants to go to university, we usually give them Qard Al Hasan for a short period of about a year and don't charge them anything for it. Liability and Business Risk This is the overall objective. concept of fairness - the idea that all parties should share the risks and rewards of any business enterprise. To be entitled to a return, a financial provider must either accept a commercial risk or provide a service (such as the supply of an asset). Otherwise, the financier is, from the point of view of Sharia law, not only an economic parasite but also a sinner. This principle is derived from a saying of the Prophet Muhammad (peace be upon him): With profit comes responsibility. One is only entitled to profit when one assumes responsibility or risk of loss. By linking profit to the possibility of loss, Islamic law distinguishes legal profit from all other forms of gain. Difference between Islamic banking and conventional banking Islamic banking Conventional banking focuses on investment The emphasis is on the loan The emphasis is on the soundness of a project The emphasis is on the repayment capacity Coordination with partners in resource mobilization Dependence on borrowing for resource mobilization Apply moral criteria in investment Apply only financial criteria Islamic banking and finance: criticisms encountered The concept of Islamic banking has often been criticized by purists as well as modern conventional bankers. It is claimed that the instruments of Islamic banking are essentially the same as those of traditional banking and serve the same purpose with just different terminology. Such criticism has been encountered due to the definitions and differentiation between interest (riba) earned and profits which both have very similar definitions; profit can be defined as money earned when there is a commodity on one side of the transaction and interest can be defined as money earned when there is money on both sides of the transaction , these two concepts are separated by a thin line resulting in such criticism. However, going into detail about this particular aspect of Islamic banking is beyond the scope of this article as this article focuses on the compatibility of the cryptocurrency, bitcoin, in Islamic banking. Virtual (Cryptocurrency) There are different types of cryptocurrencies, but only very few of them are well known toglobally, namely Bitcoin and Ethereum. They have gained such worldwide notoriety due to the exponential increase in their value in a short period of time, but many are still unaware of what they actually are or what their potential applications and benefits would be in the future. Cryptocurrency is based on the concept of “blockchain”. Blockchain is nothing more than a decentralized digital ledger that records transactions chronologically and publicly, allowing anyone to verify and access the data. It is essentially the underlying technology that powers or supports all cryptocurrencies in existence today. This allows money to be sent in the form of cryptocurrency from anywhere in the world, from one post to another, without the intervention of third parties such as banks, gateways, etc., which generally tend to charge fees. This particular functionality of blockchain is not only limited to money transfer but can be applied to various other forms of asset classes such as property rights and various other assets. Currently, the most widely used application of blockchain is in cryptocurrency, primarily bitcoin. How It's Made Unlike fiat currency, cryptocurrencies cannot be created out of thin air or printed off the press. A huge amount of effort and resources are required to produce the supply of cryptocurrencies like bitcoin. This process of generating Bitcoin is called “Bitcoin Mining”. The very complex process of mining is what helps keep the intrinsic value of bitcoin at such high levels and growing at a staggering rate. The bitcoin mining process The effort of computing power, electricity and time by miners represents the value that validates the creation of cryptocurrencies. This is contrary to the fiat system, in which governments and banks can create money impulsively without a corresponding injection of value. It is important to emphasize that fiat money is debt-based. It follows that every time a bank makes a loan, it simultaneously creates a corresponding deposit in the borrower's bank account, thereby creating new currency. The generation of Bitcoin blocks is carried out according to the following process: Step 1: collection of transactions. Because bitcoins are constantly traded, their trading records must be maintained in the form of a public ledger. This is where miners come in, they deal with this problem by collecting all transactions made during a defined period of time into a list, called a block. It is the job of miners to confirm these transactions and write them into a general ledger.Step 2: Create the hashThe name blockchain is derived from the long list nature of the ledger where there are several blocks arranged in the form of a chain, hence the term “Blockchain”. Each time a new block of transactions is created, it is added to the blockchain, creating an ever-growing list of all transactions that have ever taken place on the Bitcoin network. A constantly updated copy of the block is given to all participants, so they know what is happening. So the blockchain has been created, the ledger is made public for all network users to see, but then it comes into play in a very important factor, which is the trust factor. Bitcoin miners ensure that this factor is taken into account. When a block of transactions is created, miners put it through a process. They take the information in the block and apply a mathematical formula to it, transforming it into something else. This..