Bitcoin in Islamic Banking and Finance

This paper analyzes the compliance of distributed, autonomous block chain management systems (BMS) like Bitcoin—also referred to as 'virtual currencies'—with the requirements of Islamic Banking and Finance. While intended as a narrow financial and economic analysis, and not as an in-depth analysis of the subtleties and nuances of Shari'a as they relate to banking and finance, it shows that a BMS can conform with the prohibition of riba (usury) and incorporate the principles of maslaha (social benefits of positive externalities) and mutualrisk-sharing (as opposed to risk-shifting). It concludes that Bitcoin or a similar system might be a more appropriate medium of exchange in Islamic Banking and Finance than riba-backed central bank fiat currency, especially among the unbanked and in small-scale cross-border trade.

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