Perspective of Digital Currencies in Islamic Banking

Abstract

Virtual currencies are banned by conventional banks of various countries, on the basis of their anonymity and because they employ a distributed ledger with zero supervision by a central authority. Digital currencies are, in fact, based upon an open distributed ledger system in which a public key (user's address and current balance) is not hidden from other users of block chain system. Additionally, a distributed ledger synchronises the data of its transactional records on every user location, hence no central system can be hacked (contrary to conventional banking systems). Islam provides the idea of social justice, and a currency that is backed with a reference material of good value, since our currency depends on government backing (can lose all of its value any day, if the government choose to take such action). Additionally, Islam prohibits any “Gharar” which means uncertainty, transactions dependent upon future outcomes, high-risk involvement and “Maysir” (gambling- game of chance). Digital currencies exhibit both “Gharar” and “Maysir”, but can be deemed fit under the Islamic principles if they use gold as a reference material. In past, Islamic instances show the use of 4.25 gm of gold as a dinar and 3 gm of silver as a dirham. A digital currency of OneGram coin is a perfect recommendation in this case, since each Onegram coin is backed with Onegram of gold and it donates 2.5% to charity from every 1% generated through each transaction. It is recommended that Islamic banks can provide some supervision to a currency like Onegram coin, and distributed ledgers can be stored in various Islamic banks and also at different locations of users all around the world, hence increasingthe security of viable banking transactions through cryptographic encryptions.