Understanding Blockchain in Islamic Finance & Banking
The blockchain technology is rapidly gaining the attention of Organizations of Islamic Cooperation. There are various Islamic financial institutes which are planning to use the blockchain system to bring the benefits that come with it. The authorities in Dubai have revealed their plan that in 2020 they will be using blockchain in public and private sectors. It is no surprise that even government is showing interesting in the digital currency. Here we have the information related to the relationship of blockchain in Islamic finance and banking system.
What is Blockchain?
The blockchain is a decentralized digital currency which helps in recording the transactions publicly and chronologically. It will allow users to access and verify their data. Blockchain is an underlying technology which is used to power Bitcoin and other digital currencies. Blockchain will allow you to send money around the world with no or little cost. There will be no banks or other third-party companies involved in the system which makes it more reliable. There are unlimited uses of Blockchain, and you can manage any type of transactions with it from property to goods and money.
Blockchain Technology in Banking and Finance
There are some people who are interested in knowing how blockchain in banking can be beneficial. There are two fold solutions provided by blockchain technology for the banking system. It can help banks save billions in the case by reducing the transaction and processing cost. As well as with blockchain technology in banking there will be a dramatic reduction in the time and paper that is processed. It will be valuable and profitable for the banks in the long run.
Is Blockchain Relevance for Islamic Finance Products?
The best thing about blockchain is that it provides an ideal solution for Islamic banking. It will not only reduce the cost of transactions, but also blockchain in Islamic banking will help get rid of interest rate. In the digital currency system, there is no interest that customers usually have to deal with. It means that management of services will become easier for the service providers.
Applications of Blockchain in Islamic Finance
There are various interesting applications of blockchain in Islamic finance that can bring different benefits:
1. Smart Contracts:
To avoid the rapidly increasing interest rates, Islamic banks can take help from smart contracts. It will help to reduce uncertainty and speculations. There are different types of contracts available in Islamic financing that will help in the management of profit sharing agreements, agency arrangements and partnerships.
2. Cloud Storage
The biggest attraction of blockchain in Islamic banking is that banks will get access to cloud storage. It will reduce all types of conflicts and help customers maintain their partnerships. The cryptographic mathematic algorithms will provide access to all the information. It will store all important data that can be accessed by banks and customers to avoid any issues.
3. Digital Currencies
There are different types of digital currencies available, but the development of digital currency is not as simple as it seems like. It requires a complete process to manage the services. That is why such currencies come with benefits like improved security and different rewards to miners.
Future of Blockchain in Islamic Banking and Finance Industry
The blockchain in Islamic finance and banking will surely help the Islamic banks, and financial institutes to succeed. Without worry about the interest and other such issues Islamic banking system will be able to work more productively. Management of loans and other relatable services will become easy. It is discussed in more details in the diploma in Islamic finance and Islamic finance courses offered by AIMS.