Analysis of "Bitcoin, Fiat, and Islamic Finance"
The core argument: The global fiat monetary system is fundamentally incompatible with Islamic finance, whereas Bitcoin is inherently aligned with genuine Islamic economic principles.
The Fiat Failure (Haram)
• Riba and Debt: The modern system relies on fractional reserve banking, creating money ex nihilo (out of nothing) when loans are made. This creation of "money on money" is defined as the Islamically proscribed sin of riba (usury/interest).
• Failed Islamic Banking: Contemporary Islamic banks have made the fatal error of competing with conventional interest-based institutions instead of returning to prophetic economics. By remaining fractional reserve banks reliant on fiat, they repeat the mistakes of conventional banking.
• Form Over Substance: Popular instruments like the commodity murabaha (tawarruq) are legal ruses designed to mimic loans with interest. Likewise, sukuk (Islamic bonds) often include a Purchase Undertaking that guarantees capital repayment, stripping away asset risk and replacing it with credit risk, thus acting like a conventional bond.
The Bitcoin Alignment (Halal)
• Sound Money: True Islamic finance was founded on a hard monetary standard (like the gold dinar) and requires money to be a medium of exchange and a store of wealth, not a commodity to be traded. Bitcoin, being finite, scarce, and inflation-resistant, possesses superior sound money characteristics compared to gold.
• Anti-Riba Mechanism: Bitcoin is not birthed in debt. It is created through the proof-of-work mechanism, requiring work and energy expenditure, which is termed "unforgeable costliness". This inherent cost prevents creation ex nihilo and makes seigniorage on issuance fundamentally impossible.
• Ethical Economics: Bitcoin’s scarcity encourages low time preference (patience, saving, long-term planning), aligning with the Islamic concept of sabr. Its decentralisation aligns with the tradition of separating the ruler (government) from money, fostering economic justice and free markets.
• Future Finance: Bitcoin's "pure equity" nature is expected to force financial intermediation back to the ethical risk-sharing models central to Islamic finance, such as mudaraba and musharaka.
The paper concludes that a non-Muslim (or group of non-Muslims) likely invented the most Shari’a compliant monetary system in existence. 🔥
Original web version: https://www.axiombtc.capital/islamic
PDF (English): https://static1.squarespace.com/static/62de2a644f0418669484e364/t/68f1a881e673d61eba7817fd/1760667823710/Bitcoin%2C+Fiat%2C+and+Islamic+Finance?s=09
