Bitcoin’s blockchain is an open network protocol that can replace today’s internet, and offers benefits specific to the Islamic Finance (IF) industry. Speaking at an online seminar as part of the Future of Islamic Fintech conference 2020, Bitcoin Association ambassador for Malaysia Masumi Hamahira said Bitcoin’s blockchain offered every benefit today’s Internet does, while making ownership sequences or various assets far more efficient to manage and prove.
Fruitful Keynote Speech " Enterprise – Grade Blockchain for Islamic Finance" to share BSV's feature with audience. Received lots of questions and requests to share slides. Let us bring more fresh audience to BSV ! pic.twitter.com/1CM4MHrQMH
— MASUMI (@MasumiHamahira) September 8, 2020
Hamahira is an Advisor for the Islamic Finance department at Japan’s MUFG Bank. MUFG Malaysia, where he has worked since 2011, has won several Islamic Finance News Awards and Hamahira has personally introduced several IF concepts to the Japanese financial world, such as MUFG’s world’s-first JPY-denominated sukuk issuance in 2014.
Malaysia is recognized as a leading global center for Islamic Finance, often bridging the gap between the Asian and Middle Eastern economies.
Bitcoin is a network protocol
Notably, he predicted the “blockchain era” would supplant the Internet era, and this evolution would create a patent war over many of the technologies central to its operation.
The blockchain era would mirror that of the Internet in other ways too—in the Internet’s early days, there was a battle between the “public internet” and “private internet,” where several companies attempted to build networks around their own proprietary platforms.
“More than just a digital currency and blockchain, Bitcoin is also a network protocol, just like the Internet protocol, it is the foundational rule set for an entire data network,” he said.
He presented a diagram showing the structure of a Bitcoin network versus the Internet’s TCP/IP. In Bitcoin’s network, the Bitcoin blockchain links its Transport, Network and Physical layers by timestamping and ordering data packets, generating proof of existence, and offering immutability of records. Today’s Internet does not do this in a universally-accepted provable way.
Misconceptions about blockchain to overcome
There are still several misconceptions about how a public, open blockchain could replace the Internet. These are that an open blockchain has no privacy, cannot be regulated, cannot permission or control access, cannot scale, and that it’s necessary to wait 10 minutes or more for a transaction to confirm. None of these is actually true.
One key rebuttal is that an open blockchain protocol is no more or less regulated than the open internet protocol over which most of today’s data travels. Thinking of the blockchain in this manner helps people to understand how regulation and security actually work, and that a blockchain-based world could have the same structure.
It’s important for big business and government to understand this, Hamahira said. As for scaling, he added, technology would always improve to accommodate this. He quoted Satoshi Nakamoto as saying “Bitcoin can already scale much larger than (Visa) with existing hardware for a fraction of the cost. It never really hits a scale ceiling.”
He compared the BSV blockchain with other well-known “DLTs” like Ethereum, Hyperledger, and R3 Corda. The only other open chain on that list is Ethereum, which has far higher costs and has “questionable” regulatory compliance.
Hamahira referred to UNISOT as a case study for how Bitcoin could be used to manage a supply chain system, connecting silos, verifying steps in the process have confirmed, and receiving data from both human and machine sources.
He also mentioned Kronoverse, its game “Cryptofights” and e-sports in general as an example of how blockchain data verifiability could record all actions and evidence (if present) of any cheating in the process.
Bitcoin specifically for Islamic Finance
So how could Bitcoin specifically assist the world of Islamic Finance? One is the higher degree of commodity trading in the IF industry: having those assets tokenized on the blockchain makes the process more efficient and helps to eliminate counterparty risk.
The process of “murabaha,” or “cost-plus-financing” is a common practice in Islamic Finance. For example, a business needing to purchase equipment enters into an agreement with the bank whereby the bank purchases the equipment itself, declares the profit (or mark-up) it will add for the service, and sells the equipment to the customer at a later date. This is an IF alternative to a standard loan, since charging interest is forbidden under Islamic law.
Commodities are used as payments in these transactions instead of cash in the IF world. It’s also forbidden to sell commodities that one does not own outright. As a result, commodity transactions often happen in a sequence involving a number of parties, and the process is checked by a Sharia auditor. A string of Bitcoin UTXOs solves this problem, and also makes it much easier to verify who owned what, at what stage.
Bitcoin could also assist in the “sukuk,” or Islamic bonds, market—managing settlement in different currencies on one platform, rather than the current variety of platforms used. Again, proving a record of ownership sequence and helping to combat money-laundering across borders provided particular appeal to the IF industry.
He described the Bitcoin blockchain as actually “more Sharia compliant, more beautiful.” While it does offer these specific benefits to Islamic Finance, the same principles apply to any other enterprise or organization needing secure, auditable data records. Bitcoin does all this better, and at a fraction of the cost of today’s networks.
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