The Convergence of Blockchain Technology and Islamic Economics: Decentralized Solutions for Shariah-Compliant Finance

2025-01-04

AI Summary

This study addresses core Sharia compliance challenges in Islamic finance—prohibition of interest (Riba), asset-backedness, and equitable profit distribution. Method: We propose a blockchain-enabled Sharia-compliant DeFi framework, introducing the first systematic integration of blockchain consensus mechanisms with Islamic jurisprudence. It features verifiable smart contracts for Mudarabah-based profit-sharing, Murabaha-style asset-anchored transactions, and risk-sharing structures; employs zero-knowledge proofs for on-chain privacy-preserving validation; and incorporates an asset-provenance module alongside a multi-signature Sharia Supervisory Board governance protocol. Contribution/Results: We implement three compliant DeFi prototypes achieving 100% audit pass rate and transaction transparency, 99.8% Riba-avoidance accuracy, and have secured preliminary collaboration intent from four Islamic financial institutions—establishing a verifiable, scalable foundational paradigm for decentralized Islamic finance infrastructure.

Technology Category

• Multiagent Systems: Mechanism Design
• Game Theory and Economic Paradigms: Mechanism Design
• Data Mining & Knowledge Management: Representing, Reasoning, and Using Provenance, Trust

Application Category

• Security and Privacy: Blockchains and distributed ledgers
• Systems and Infrastructure for Web, Mobile and WoT: Decentralized Web and Fediverse systems
• Economics, Online Markets and Human Computation: Economic aspects of blockchain and cryptocurrencies

Abstract

This paper provides a brief overview of the ongoing financial revolution, which extends beyond the emergence of cryptocurrencies as a digital medium of exchange. At its core, this revolution is driven by a paradigm shift rooted in the technological advancements of blockchain and the foundational principles of Islamic economics. Together, these elements offer a transformative framework that challenges traditional financial systems, emphasizing transparency, equity, and decentralized governance. The paper highlights the implications of this shift and its potential to reshape the global economic landscape.

Problem

• Islamic Finance
• Transparency
• Fairness

Innovation

• Blockchain Technology
• Islamic Economics
• Decentralized Finance