Introduction
For all of those who genuinely want to know what this global phenomenon called ‘Bitcoin’, there are three questions that need to be answered.
Why do we need Bitcoin for anything when we have what we have?
How does the ‘system’ work? And what did ‘Bitcoin’ achieve
What is it? If its even a ‘thing’ and are their any parallels we can draw between it and what we already know and have? Or is it something completely different?
With these three questions we will make the case for Bitcoin. As for the Islamic question of whether it is ‘halal’ or not, that will be dealt with in the Islamic Guidance section of our website, but we highly recommend you understand what bitcoin is before delving into that as:
حكم الشيء فرع عن تصوره
Having an islamic opinion on something is dependant upon your mental perception of what it is.
If you don’t understand the Why, How and What of Bitcoin, you can never understand whether it is halal or not.
So with that introduction out of the way, lets begin.
History of money from Islam
In order to understand what bitcoin is, we need to understand where money came from, and the historical development of this ‘measure of value’.
In studying the history of money, many historians look at the empirical evidence and historical accounts, but from an islamic point of view, we also have information about early man that must be included in this narrative. Mankind’s began was with Aadam and his wife. They were both existing in paradise, and we know for a fact there was no money or economy at the time. There was no commerce, because there was no shortage of anything. You would only exchange one thing for another if items were limited in supply. So we can make a strong assumption that they didn’t even know what money was while in paradise. There was no need for it.
When Aadam and his wife ate the forbidden fruit, they were exposed to a few new things, ironically related to the concept of ownership. They were exposed to:
- Their nakedness,
- Scarcity,
These two events are very significant for the discussion of money and commerce as it gave birth to the clothing industry and the food industry, the two basic needs for human beings. While in Jannah, food was abundant without toil or work, and neither Aadam nor his wife knew of their nakedness.
But our story has not fully formed yet, as Aadam and his wife were still close family. The general practice of all marriage and family is that each member mutually work for the benefit of the collective. There is a general understanding that although one may work to produce food while the other might work to make and mend the clothes, at some level all that is done will ‘equal out’ over time due to this long term
bond. We all witness this in all our families, especially when we have siblings when one does more chores than the other, one child will complain that they did so much while the other did nothing or not enough. And this is the foundation of money, the concept of a debt and the measure of ‘who owes what to whom’.
So once Aadam’s family grew, he had children and his children had children, the bonds between family grew weaker, and social interactions became less frequent, there was a need to either ‘settle’ the debt immediately or record the debt to be claimed back later on.
Settling the debt immediately
Many historians say that money began with barter, which is the direct exchange of items. So if individuals from tribe A wanted some meat and they have flour, and individuals from tribe B have flour and want meat, they would make a direct exchange based on what they both feel is a fair exchange. This is barter, and this is usually used when there is little to no trust between the two parties or when resources on both sides are needed in full and the exchange needs to be totally completed at once.
Debt
However, what existed from the very beginning and was more convenient is debt. I take from you now some potatoes, and later on I’ll give you something that would balance out what I took. This is how all human interactions work out on a fundamental level. Even the relationships between parents and their children, we can see that in the Hadeeth of the Messenger of Allaah صلى الله عليه و سلم when I Sahaabah came to him and said that he had carried his mother throughout the hajj on his back. He asked if he had ‘paid back’ what he owes his mother, and the Messenger of Allaah replied that he had not even paid back a drop of sweat that she broke while delivering him into this world. What this Sahaabee understood was that he ‘owed’ her something due to what she had done to raise him. There was a ‘debt’ upon him, and he wanted to know if he had ‘settled’ that debt. But the Messenger of Allaah صلى الله عليه و سلم wanted to emphasise that the relationship of family is of ‘perpetual debt’ that is never settled, unlike non-family relationships. Family will always be in debt to each other, which maintains their ties together. This is the foundation of human relationships and interactions that began from the eating of the fruit and the leaving of paradise.
Debt to money
In our attempt to balance ‘what each is owed to each other’ we have used different mediums to measure and record such a debt. The most basic form is found in the common statement
“I’ll owe you one” that is very common amongst friends and relationships where either party is likely to see each other in the near future, and are likely to ‘pay back’ such a debt. A mental record is enough. But when trust is reduced, either trust that they will pay it back or trust that they’ll see them in the near future, this debt needs to be secured with some sort of backup. So for example, I’ve just helped you build your shed in the back, and it took us both 4 days of hard labour. I could ‘gift’ that work to you, and therefore the debt is cancelled, but i could also want you to do something for me in exchange for that work, so that the debt is paid. What I want is a new car, and you promised to help me get that, in exchange for the help I gave you. So to secure that debt, I could just write that down, tell others or just shake hands on it and hope for the best. Or you could give me something to hold onto that would ‘guarantee’ that I get the car I was promised. In Islam this is called a Rahn رهن. An item of value that would guarantee the compliance of the other party to settle a debt. It might not be exactly what I want (which is a car at this stage) but its supposed to be able to get that item if the agreement falls apart. It’s at this stage we can now see that the storage of this ‘debt’ can be ‘recorded’ with items, and not just in writing and knowledge. The
‘value’ of this item to its owner and it being in the
‘hand’ of the one they owe something to conveys a message, that ‘This is what is owed to me by its owner’. For this to work, it does not have to have this ‘value’ to the one who is owed the debt, but it needs to at least ‘believe’ that it has that ‘value’ to the one he received it from, and at most that others share in that perception. ‘Value’ is not a universal objective thing, it is completely subjective thing, and varies from person to person, between time, location and circumstance.
Standardisation of value transfer
Above we only drew a picture of
‘money’ being a means of conveying a
‘debt’ owed to someone between two parties. But as society grew, and these transactions increased in frequency, the natural flow of events would be to consolidate the
‘items’ used to convey
‘value’ to something that is more universally accepted as opposed to that which is accepted to some and not others. This is where historians have noted in the history of
‘money’ the use of different
‘social mediums’ to convey, exchange and record this
‘debt’ or
‘value’. Its here where we would normally attribute these items as functioning as
‘money’, but its important to always keep in the forefront of our minds the ‘purpose’ of these items and to recognise what they are doing. They all ‘record’ what is owed to those who hold it by others. So here are some brief examples of these
‘items’ that have been used as a socially accepted and universal means to conveyed this message.
Rare and interesting items
In multiple locations throughout the earth rare snail shells have been used to convey value, such as found in the 75,000BC Blombos Cave, South Africa, or Rare shaped ostrich eggshells formed into beads as found in the Kenya Rift Vally from 40,000BC, or rare mammoth ivory beads as used in Russia 28,000BC. Animal shells were used as recently as 1933 in Pismo Beach California.
Feather Money
(1)
We have an example of the use of bird’s feathers as a means to convey value, or to ‘record the debt’ in the Solomon Islands. Production of the feather money was largely confined to the south-west of the main island, Ndende, and was a 3-stage process. Each stage was carried out by a specialist who had received the
magic skills from the spirits. The technique was passed on from father to son. In the first stage, the scarlet honeyeaters were caught by a bird catcher, who painted a branch with mulberry tree sap to act as glue. He then lured the birds by using a real tethered bird, a decoy bird or he could imitate the creature’s call. Once the bird was stuck in the glue its feathers were plucked.
A second specialist was responsible for making the platelets (called lendu) composing the coils using stiff pigeon feathers. The pigeons were first shot with a bow and arrow, and the feathers were then glued together with the sap of the mulberry tree. The red feathers of the scarlet honeyeater were then attached to each platelet. Altogether, it took 1500 to 1800 of these platelets to form 1 coil. Each coil took around 700 hours to make.
The platelets were then taken to the coil-maker who bound them all together to form a 9 metre long coil. This involved stretching 2 strips of bark parallel to one another between 2 trees. They were held apart by a horizontal stick made from the wing bone of a flying fox. The specialist then began binding the platelets between these 2 cords, working from the centre towards the outer edges. The platelets overlapped like roof tiles.
The end result was a bright red coil of feathers. The brighter the colour and the better the condition of the coil, the greater the value. Altogether, there were 10 grades of feather money. The lowest grade coils were almost entirely black and were often in poor condition. A coil in a particular grade was worth twice as much as one in the next grade down. For storage, the coils were packed in leaves and cloths together with amulets and hung about 2 metres above the fireplace.
What was important to take from this was that the process of ‘producing’ this money was painstaking and time consuming, The knowledge was hidden from most, and due to that there was an added level of scarcity & craftsmanship which gave it its perceived value.
In Africa, when we examine their monetary unit, many historical stereotypes begin to make sense. They used beads that were made largely from glass. They were said to be made from meteorite stones and rock, or imported in from Egypt. They were
‘relatively’ expensive to make due to the glassmaking tech involved. Due to the resources available to them at the time, they involved a lot of hard labour, and used materials that were hard to come by. They were formed and fashioned into beads, like previously mentioned forms of money, and the obvious reason for that is that it was how money was carried in the past by some. Rather than place them in a box or in a bag, they where threaded on a string and then carried around the neck or arm. So we can now see the historical connection between jewellery and
‘money’. So in the past, if you had a lot of
‘jewellery’, that was literally a display of the amount of
‘money’ one had, both as a deliberate display, and a by product of the way they stored their money. When they wanted to spend some of their beads, they would take it off of the chain and exchange it with others.
In the 16th century, Europeans travelled to those locations in Africa where these beads were the ‘currency’ or ‘medium of exchange’ and found that this was what ‘they’ accepted in exchange for goods and services. However, what was rare and hard to make for them, was easy for the Europeans. Making glass was cheap, and it wasnt long before the Europeans flooded the ‘market’ with these ‘cheaply made’ glass beads, and as a result, they obliterated its ‘social’ value. It was no longer ‘rare’ but actually now common and easy to get. Due to the size of the market and extent of the use of these beads, the affects of this debasement took a while to occur, but when it did it was irreversible.
One of the most significant examples of ‘money’ as being a representation of both ‘work rendered’ and ‘a debt’ owed can be found in the Rai stones on the Yap island. They were ‘relatively rare’ stone rocks that were calved from a neighbouring islands of Palau and Guam and transported by boat to their island. They were circular (we can speculate to accommodate rolling) and had a hole in the middle in order for people to put in them wood planks to facilitate lifting and moving the stones around. They way they were used were that after transported to their island, they were the physical representation of ‘value’ or ‘debt’ owed to those who possessed them. But rather than physically exchanging them between people (because some of them were bigger than the owners themselves) they instead ‘announced’ the exchange. They relied upon the ‘consensus’ of the inhabitants of the island as to who owns what. Although this sounds very strange, this is technically what happens with all exchanges. The main difference is that rather than everyone making a ‘mental record’ of the exchange, the exchange is made physically and ‘remembered’ by the evidence of who possesses it. Lets briefly look at the pros and cons of each system:
Exchanging items physically
Pros:
- We dont need to keep any records, we can use ‘possession’ as evidence.
- This would make the transaction immediate and without delay
- Allowed for wealth to transcend location, culture and even societies
Cons:
- Wealth can easily be taken oppressively through theft and fraud
- Technically, criminal and illegal exchanges can take place easily with this method as each transaction is private
Exchanging items socially via collective consensus
Pros:
- Almost impossible to ‘steal’ someone’s money, as an exchange can only occur if everyone agrees to the exchange
- Illegal exchanges were a lot more difficult to occur as everyone would know that a transaction has occurred and most likely why
Cons:
- Each transaction would take time as this information of the transaction would take ‘time’ to propagate throughout the island
- This system would be limited only to those who take part in keeping record of these transactions. It would be useless once someone left the island.
However, even with the above mentioned pros and cons of each type of system, the Rai stones of the Yap island still depended upon a physical representation of ‘value’ or the ‘debt’. Something that takes time and effort to make and therefore demonstrates that ‘effort’ that it represents. When a European sailer, known as O’Keef came across their system, and saw the opportunity to make these stones more cheaply (as he had dynamite and other more modern tools to make and transport them) he saw the opportunity to make a profit. He provided them with Rai stones that were cheap for items he wanted from them that were worth more in his society. Although some of the inhabitants of the island didnt not want to accept the stones from him because they were not made in the more ‘traditional’ way, enough accepted them for their ‘currency’ and ‘system’ to eventually be inflated away and be completely debased.
These are some of the historical examples of how ‘debt’ or ‘value’ was recorded throughout early human history. These examples are all ‘pre-metallic’ versions of currency, and the more fundamental forms of it. Whenever more complex and difficult forms are harder to get, we find society returning to these earlier forms, or put another way, a more ‘purer’ version of whats happening. Like cigarettes in prison used as a currency, and so on.
