Blockchains through the Lens of Islamic Economics

Verifiability, traceability, immutability, validation through consensus, sharing through network, inter-generational distribution – attributes and concepts common to block chain methodology have a root in Islamic scholarship. The chain played a significant role in shaping the contours of Islamic economics, by creating the authenticated and tamper-proof records of the words of God and the words and actions of His Prophet as the basis of Islamic economic behavior

The conceptual foundations of blockchain technology have a strong ethical dimension. It is usually associated with terms, such as, transparency, verifiability, traceability, immutability, all of which are bracketed with economically and socially ethical behavior. It is trust-inducing and involves consensus-building, that further underline its ethical roots. And its emergence in recent years is a response to the failure of many traditional institutions that are supposed to guard against fraud and unethical behavior. As such, it has strong merits when seen through the lens of Islamic economics, a discipline rooted in ethics and morality. Let us begin with a simple conceptual explanation of blockchains.

At a basic level, the blockchain is a familiar concept. It is a ledger, or a record. Similar to a written record (manual or digital), it has chapter or blocks of data and information. Further, each block (chapter) is added serially and consecutively over time. However, there are a few distinct features. First, the blockchain is a shared record. It is a distributed record. It exists in perfectly replicate form in a multitude of locations, in the servers of participants. Unlike records – manual or digital – that are centrally controlled and updated by a centralized authority, no single participant owns the blockchain or prescribes alterations in it. Any update in a blockchain requires a consensus amongst all participants or actors. Second, the blockchain is tamper-proof or immutable. It stores a history of itself back to the first entry. The identity of each new entry is created, in part, from the identity of the previous entry. Every individual block is thus, linked to all that precede it. Any unilateral attempt to change its content or identity (without consensus of all actors) is not a possibility. It is this feature of blockchain that makes it fully secure, transparent and a trust-inducing engine.

Do the above features of blockchain methodology (in bold) ring any bell with the Islamic economist? The answer is, perhaps surprisingly, yes. Let us see, how.

Islamic economics has its foundations in the Quran and the Hadith – the primary sources of ethics and law – that govern the behavior of all actors.  It governed the behavior of the companions of the Prophet (peace be upon him) of Islam in the first Islamic state of Madinah. It sets the rules of economic and social behavior for the believers and the faithful today and into the future. Let us begin with the past.

Quran: The Immutable Record of God’s Words

Subsequent to revelations through the Prophet (pbuh) the Quran existed in a distributed manner with the companions of the Prophet, who played an important role in its compilation of the Quran. During the 23 years of prophethood, the verses of the Quran were memorized as they were revealed, and about 42 scribes wrote the verses on different materials such as paper, cloth, bone fragments and leather.[1] Next in the process was to address the need for documenting every verse, or the recorded ledger that would shield the text from possible corruption – intentional or unintentional.[2]

Next in the process was to address the need for documenting every verse, or the recorded ledger that would shield the text from possible corruption – intentional or unintentional.

Setting up the Council: During the time of Caliph Abu Bakr, when 70 people who knew the Quran by heart (qari), were killed in the Battle of Yamama, Umar ibn al-Khattab became concerned and appealed to Abu Bakr to compile the Quran into a book. Abu Bakr formed a delegation under the leadership of Zaid ibn Thabit, one of the leading scribes. This delegation of twelve companions assembled in Umar’s house and collected all the materials on which verses from the Quran were written.[3]

Validation and Consensus: The law of witness, as mentioned in Quran 2:282 played an essential role in the Quran’s compilation (as well as in hadith methodology), and constituted the very core of Caliph Abu Bakr’s instructions to Zaid. Ibn Hajar’s statement affirms this view, that “Zaid was unwilling to accept any written material for consideration unless two Companions bore witness that the man received his dictation from the Prophet himself. (Al Bukhari: 4986). A total of 33,000 companions agreed that every letter of the Quran was in the right place. Then this mushaf (record) was sent to Umar ibn al-Khattab.

Sharing across the Network: The reign of the second Caliph Umar was marked by the Quran’s rapid spread beyond the confines of the Arabian Peninsula. He dispatched companions to Basra and Kufa for the purpose of teaching the Quran. The third Caliph Othman continued efforts towards ensuring that the mushaf (record/ ledger) was now widely distributed by sending out full copies of the same throughout the many provinces of the Islamic nation. His general injunction that people “write down the mushafs” ensured multiple replicates of the mushaf (record) distributed as widely as possible. The outcome of this endeavor was that every Muslim province absorbed this mushaf (record) into its bloodstream making it immutable and incorruptible.

Inter-generational Distribution: In addition to distribution of the mushaf (record) across geographical boundaries, the significance attached to the institution of Quran memorization (hifdh) ensured that Quran continued to be immutable across generations over the next fourteen centuries. Notwithstanding the multiple formats – text or digital – of the case of Quran, the “distributed network” expanded exponentially. In the face of any attempt by bad actors to corrupt a word or even a letter, the remaining actors with the entire Quran firmly etched in their memories, would invalidate this change.

Note that the distributed ledger technology or a blockchain precisely seeks to ensure a similar outcome. If one bad actor intends to change a particular data, or transaction, the remaining nodes invalidate this change. In order to be successful, a bad actor must make changes in all the nodes that hold this data, a task, next to impossible.

Isnad: The Chain of Legitimacy for Prophet’s Words & Action

The second primary source of Islamic ethics and law shaping economic behavior in an Islamic economy is hadith or the reported words and actions of the Prophet (peace be upon him). The concept of isnad or chain of authorities attesting to the reported words and/or actions of the Prophet is central to the process of imparting legitimacy and historical authenticity to a particular hadith. The following quotes from some well-known Islamic scholars captures the significance of isnad.

The concept of isnad or chain of authorities attesting to the reported words and/or actions of the Prophet is central to the process of imparting legitimacy and historical authenticity to a particular hadith.

Imam Suffian at-Thawri said, “The Isnad is the weapon of the Believer. So if he does not have a weapon with him, what will he fight with (against hearsays and false attributions)?” Imam Muslim narrates in his Muqaddimah, Abdullah Ibn al-Mubarak said, “The isnad is part of the deen (religion). If it were not for the isnad, then any person would have said (about Islam) whatever he wished.” Imam Muslim also reports Muhammad ibn Sirin (through his own chain), who states: “The science of chain of authority and narration of hadith is deen (religion) itself. You should check whom you are receiving your deen (religion) from.” The classification scheme of hadith in order of their authenticity is based on the reliability of the transmitter in the chain of narration, among other things.

To cite an example, the first among the types of hadith is Sahih (authentic) that fulfills the following five conditions: (i) The chain of narration is connected. (ii) The hadith does not oppose any other narration. (iii) The hadith is safe from defect. (iv) The narrators of the Hadith are reliable and just narrators. (v) The narrator’s memory is intact and complete. What do the words, “chain is connected” imply? It means that:

• the narrator has heard it from the narrator he is ascribing the narration to.
• the narrator read this narration to the narrator from whom he is taking the narration.
• If the person has heard the narration from the scholar, then he is allowed to use either of the two modes of narration: “He narrated to us” or “I heard”.

The science of hadith as the primary influencer of Islamic economic behavior is essentially about inquiry into authenticity of hadith through isnad or chain of narration.

Note the role that the chain played in historically shaping the contours of Islamic economics, by creating the authenticated, immutable and tamper-proof records of the words of God and the words and actions of His Prophet as the basis of Islamic economic behavior.

The transparency, verifiability, traceability, immutability that go with blockchains can be seen as gharar-reducing and therefore, leading to economic behavior that is in conformity with Islamic ethics and morality.

Do blockchains have a role to play in Islamic economics in contemporary times? In addition to riba-prohibition, a norm central to Islamic economic and financial transactions is prohibition of excessive gharar. All forms of contracts and transactions must be free from excessive gharar (or uncertainty). The concept of gharar has been broadly defined by the Islamic scholars in two ways. First, gharar implies uncertainty. Second, it implies deceit. The Quran has clearly forbidden all business transactions, which cause injustice in any form to any of the parties. It may be in the form of hazard or peril leading to uncertainty in any business, or deceit or fraud or undue advantage. Gharar induces trust-deficit and conditions of conflict.

Fast Forward 2020: Contracting in a World of Deceit (Gharar)

While we live in a world where fakes and frauds dominate, the digital world has its own additional uncertainties and vulnerabilities that most of us donot understand. We have learnt to place our trust on a few giant actors – mega entities as our trust-anchors. Most of our online transactions and value transfers across the globe take place through their facilitation and through their channels. However, this trust can be easily broken in the face of data breaches, cyberattacks and rampant use of data mining to influence customers and monetization of information. This is a clear possibility with centralized databases with these trust-anchors. This is the rationale behind the emergence of blockchains which disallow such possibility. The transparency, verifiability, traceability, immutability that go with blockchains can be seen as gharar-reducing and therefore, leading to economic behavior that is in conformity with Islamic ethics and morality. Blockchains are here to play a significant role in the Islamic economy as its thought leaders seek to come to grips with the new forms of risks, uncertainties, deceit, fraud and vulnerabilities in a digital environment.

(With research support from Zahid Mateen and Mohammed Naquibullah)

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Notes:

[1]  https://www.dailysabah.com/feature/2017/06/02/history-of-the-compilation-of-quran

[2] The Qur’an had been written down in its entirety during the Prophet’s lifetime, but had not been collected together nor were the suras arranged. See As-Suyuti, al-Itqan, i:164.

[3]It is interesting to draw a parallel in the context of blockchains – the Governing Council of Hedera hashgraph – a diversified, elected body of innovative organizations that are dedicated to the growth and development of Hedera’s public network. All members will receive an equal vote and are responsible for the setup and continued maintenance of the first set of public network nodes. Accessed from https://medium.com/hashingsystems/hedera-hashgraphs-governing-council-1054bcc48ca3>