Fiqh of Transactions Part 05

A Scholarly Investigation into Cryptocurrency and Blockchain Technology

Cryptocurrency:

To conduct a detailed scholarly investigation on this topic, we will discuss the following four key aspects:

1. What is cryptocurrency and blockchain? What is happening in the backend?

2. Mining and staking: What are they? How do they work? If removed, cryptocurrency will not function.

3. Fiqh (Islamic jurisprudence) research: Issues and their solutions, Fiqhee questions, and their answers.

4. Opinions of reliable and trusted scholars regarding whether it is halal (permissible) or haram (forbidden).

Cryptocurrency and Blockchain Technology:

We know that blockchain is an emerging technology. The first application developed using this technology was cryptocurrency. Essentially, the concepts of digital currency and blockchain dated back to the 1960s-70s, and the system that combined these two was developed between 2009-2010, which we know as "Bitcoin."

• What is this technology?

• How does it work?

• What are blockchain and cryptocurrency, and what is happening in the backend?

• Mining and staking: What are they, and how do they work? If removed, cryptocurrency will not function.

Blockchain Technology:

Blockchain is the process of storing data and records in the form of blocks. It is a chain of blocks linked in a sequence, known as a "timestamp." Blockchain operates through a peer-to-peer (P2P) network, which means that two computers are connected directly without the need for a server or intermediary.

For example, one block may store information like "Abdullah works at a certain place," while another block stores that "Abdullah gave a lecture on a particular date." These blocks are created over time, and each block stores new data.

Peer-to-Peer (P2P) Network:

In a P2P network, when a block is added to one computer, its copy is automatically created on all other computers connected to the same network. This network automatically shares data, ensuring that the information stored in the blockchain remains secure and decentralized.

For example, the Bitcoin network has more than 11,000 computers (nodes) connected directly. The benefit of this system is that if one region’s government bans Bitcoin, the network will continue to operate in other regions without disruption.

Uses of Blockchain:

1. Various software is built on the basis of the blockchain.

2. Storage sharing.

3. Live video and audio streaming.

4. Global data is stored on blockchain, known as "Oracle."

5. Smart contracts are also created using blockchain.

Explanation of Smart Contracts:

To understand smart contracts, let’s consider an example similar to gambling (which is a prohibited contract in Islamic law). Suppose a person bets: "If Australia wins today’s match, I will give you 10,000 rupees, and if they lose, you will give me 10,000 rupees." To secure this contract, both parties approach a blockchain developer who creates a smart contract. The money from both parties is locked in the smart contract, and when the match ends, the contract automatically transfers the money to the winning party without needing any intermediary.

This system is called "Decentralized Finance" (DeFi).

Blockchain Applications in Financial Sectors:

1. Banks (financial institutions)

2. Insurance (insurance and Takaful institutions)

3. Hedging systems (for financial stability)

Mining and Staking:

Mining and staking play a vital role in the functioning of cryptocurrency. Mining involves solving complex mathematical problems using computers, while staking involves locking cryptocurrency in the network to support its operations.

Fiqh Research and Scholars’ Opinions:

There are differing opinions among scholars regarding cryptocurrency. Some scholars consider it permissible (halal), while others believe it to be forbidden (haram) due to its decentralized nature and the uncertainty surrounding its transactions. Detailed fiqh discussions on these issues will be presented in upcoming sections of the Article number 5 in Sha Allah.

Conclusion:

Blockchain is a modern and rapidly growing technology, increasingly used in cryptocurrency and other financial sectors. While this technology offers many benefits, it also raises important Islamic legal questions that require further investigation and discussion.