What is Blockchain Technology and is Blockchain Halal?

What is Blockchain Technology and is Blockchain Halal?

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Blockchain, an innovative decentralized database and network technology, is an invention that started with Bitcoin and has gradually evolved into something far more dynamic over the years.

This technology laid the foundation for a new kind of internet, and this is influencing every aspect of society; it’s not only the basis for the so-called “digital gold” (Bitcoin), but it’s also allowing the creation of new and innovative digital assets: Polkadot, Cardano, Ethereum and more.

Even though “blockchain” is gradually becoming a common word in the finance and supply chain sector as well as proving itself to be one of the greatest socio-technological initiatives that humanity will experience in the coming decades, there are still many people who know nothing about this technological advance.

For this reason, it is most important that we learn, what is blockchain technology and is blockchain halal.

What is a blockchain?

Blockchain is a technology that works both as a database and a public ledger distributed through a computer network.

When we say “distributed”, we mean that it’s decentralized, so it doesn’t need a central entity managing it; this is done by consensus among all the parties that make up the network.

This also implies that the computing power of the network is used both to manage the information in the database and to avoid any type of manipulation that has not been previously agreed upon. This gives blockchain very high levels of security that other technologies don’t have.

How does blockchain work?

First, a specific software is necessary – which is usually free or open-source – to allow the different nodes (users + devices) that wish to participate, to create the network for the blockchain to work properly.

This implies that each node must have this software installed, so basically, the information that this software manages is exactly the same on each of the devices that are part of the same blockchain network.

As long as more than 50% of the nodes that make up a network are not under the control of a single person or organization, we can say that the network is decentralized.

Since blockchain works as a distributed database, none of the information stored there can be modified, so that it’ll remain unchanged, forever insha’Allah.

The link that exists – through a series of complex mathematical calculations – between all the network nodes contributes to this, making it impossible to include, modify or eliminate any record that doesn’t match with the rest of the records in the database.

Let’s take a closer look at what are the elements that make up a blockchain.

Blocks

Blocks are the essential components that make up a blockchain – that’s where the name comes from – and each block consists of a package or set of confirmed transactions and other additional data such as:

  1. Nonce: A random alphanumeric code used to calculate and generate a hash code
  2. Hash: Another alphanumeric code, unique and unrepeatable, that will be linked with the next block

During the process of creating a block, what the base software does is try to calculate the hash code based on the information contained in the nonce code, but this is a very complex mathematical calculation that can only be done by brute force, through trial and error.

Miners

Miners are nodes that have very powerful specialized equipment that provides the necessary computing power to perform the calculations that we already mentioned in the previous point. This power is used to verify and certify as “legal,” the set of transactions that make up a block.

When a miner successfully completes this process, a new block is created and the miner receives a reward, usually in the form of cryptocurrency. This process is known as mining and it’s exactly what happens with Bitcoin. However, the process can vary depending on the consensus algorithm used.

Nodes

A node is basically a user with a device (PC, phone, or tablet) connected to the blockchain through the software that maintains, distributes, and updates a real-time copy of the entire blockchain. Each time a new block is created, it’s added to the chain by means of a copy that each of the nodes store individually.

All cryptocurrencies follow a similar operation, and although each one of them has its own characteristics, the basic idea is to guarantee the maximum security granted on the blockchain.

The different types of blockchain

Public blockchains

These are blockchain networks that are accessible to anyone who wants to join. We have the first and best example of this in Bitcoin, although later other cryptocurrencies such as Ethereum, Dash, Monero, etc., would arrive.

This type of blockchain is based on the open-source philosophy, so that anyone can review, audit, improve and reuse their software. This also implies that anyone can access the network and be part of it without any type of restriction.

In addition, public blockchains have a good number of high-level security systems to prevent any individual or organization from easily altering their operation. This is necessary because as there is no central authority that regulates its operation, there is also no one who can respond if there is a failure on the network.

This also means that the economic maintenance of these blockchains depends on the software that make them work. Usually, this software will dictate the type of mining system used as well as the collection of commissions for the transactions that users carry out within the network.

Private blockchains

These blockchains usually have the same components as their public equivalents, the main difference being that private blockchains do have a central point of control, usually a company.

The company or organization is the one that authorizes access to users, in addition to regulating what they can and cannot do within the blockchain.

Private blockchains are usually financially maintained by the organization behind each project since these networks don’t have their own cryptocurrencies or mining systems.

Today, there is an increasing number of private organizations that make use of blockchain technology; Hyperledger and ConsenSys Quorum are good examples.

Consortium blockchains

This is a slight variation on the private blockchain. Unlike the previous one, in a consortium blockchain, there is no single organization controlling the network, but there are several.

This gives it a semi-decentralized character and allows both the administration of the network and the exchange of information to be carried out between several master nodes. It’s very suitable for banks and public organizations.

Hybrid blockchains

The combination between public and private blockchains. In these networks, while access and participation are private elements controlled by an organization, the ledger is usually publicly accessible, so that anyone can observe everything that happens on the blockchain.

This makes hybrid blockchains the perfect type for government institutions and certain companies that need to store data securely, but at the same time need to offer high levels of transparency and trust in their operations to the general public.

As with private blockchains, hybrid blockchains don’t usually have a mining system or cryptocurrencies, and other consensus mechanisms are used to verify and validate transactions. In addition, the fact of being a decentralized network implies that they maintain a high level of security and transparency.

Benefits of blockchain

Now that you’re clear about what blockchain is, let’s explore what makes it the technology of the moment, and possibly, the future.

Transparency

Due to its public and decentralized nature, blockchain offers a clear view of the origin and destination of transactions, since anyone can consult and verify the records in the database.

Efficiency

Due to the absence of a central authority and intermediaries, blockchain allows information to be available to everyone in a much faster way since the data transmission process is simplified.

Digitalization

Thanks to technology, digitalized transactions and documents can be accessed remotely and immediately, which can remain unchanged for as long as needed, even forever insha’Allah.

Lower operational risk

Since it is a decentralized and incorruptible process, blockchain helps reduce operational risks in organizations by allowing real-time process debugging and the use of smart contracts.

Error reduction

The creation of information based on blockchain allows reducing the number of reconciliations required for certain processes, since each block is based on the previous blocks, allowing automatic reconciliations and reducing human error.

Cost savings

Thanks to digitalization and automation, blockchain improves operational efficiency and at the same time, it reduces the cost associated with information generation and manipulation.

Create new markets

This technology opens up a world of possibilities thanks to its versatility and its distributed technology based on mathematical truth. A good example are smart contracts.

Traceability

Since each block in the chain stores information and they are all linked together, organizations can track information more easily and process history permanently, facilitating the unique tracking of any transaction.

Security and trust

Blockchain constitutes a trusted environment based on science and technology, in which the exchange of data is carried out through encrypted operations, protecting the exchange of data and guaranteeing the security of all parties.

Some blockchain use cases

Blockchain is a very versatile technology and we are seeing more and more implementation of this technology in many different sectors of many different industries. Let’s take a look at some of the more interesting use cases.

Supply chain management and monitoring

Thanks to assets digitalization and decentralization, blockchain can significantly improve monitoring and tracking in supply chains.

Each product can be associated with a unique ID number, as well as other additional information that can be tracked and re-verified when necessary. This allows to easily record and access information such as time, location, product status, etc.

Example: Food Trust by IBM and Walmart

Digital identity

With blockchain, each person has only one identity in the entire network and without the need to carry physical documents. This helps protect individuals from identity theft and enables government entities to take full advantage of digital identity.

Example: The UAE Pass

Energy markets

The different aspects related to the energy market, such as the generation, commercialization, distribution, registration, and settlement of contracts, can be carried out in a distributed way and automatically with the help of smart contracts and decentralized registration technology.

People have the possibility to participate in open markets controlled by supply and demand where consumers can also act as producers, and vice versa. And all this with a high degree of efficiency.

Example: Power Ledger

Health care

Blockchain can simplify access to vital patient data for all stakeholders through proper permission control so that only authorized people can access it – even patients.

On top of that, having health data stored in a secure and accessible way can help improve the research effort of medical scientists more efficiently.

Lastly, blockchain can help completely eliminate the counterfeiting of life-saving drugs thanks to improvements in the supply chain.

Example: Patientory

Voting systems

With blockchain, the voting process becomes transparent, secure, fast, and innovative. A distributed storage and security system can ensure that the information presented is protected against any modification, as the data cannot be modified or changed in any way and each vote can be tracked if necessary.

Example: Voatz

Safety

Since data is stored in a decentralized way on a blockchain, there is no single point of failure for hackers. This helps improve DNS security and decrease DDoS attacks. Immutability also means that hackers cannot commit fraud or data theft.

Example: Javvy

And the imagination is the limit…

  • Music royalties tracking
  • Global payments
  • IoT operating systems
  • Anti-money laundering systems
  • Content creation protection
  • Cryptocurrency exchanges
  • Real estate processing
  • NFT marketplaces

Is Blockchain halal?

Blockchain technology in and of itself is halal. There is nothing about the concept or technology of blockchain that makes it haram. Blockchain is nothing more than digital bookkeeping of recorded transactions and this is no different than an accountant writing down transactions in a ledger.

Blockchain can be used for good. For example, blockchain technology can be utilized to implement best practices in transparency and proper record keeping and distribution of zakat.

We can see that Mufti Muhammad Taqi Usmani has addressed the need to change the zakat system in Pakistan to help ensure confidence, fairness, and justice in how zakat funds are utilized.

Using blockchain can, insha’Allah, aid in making sure that zakat funds are being used ethically while also instilling confidence in those who give their zakat to organizations where they can trust that their zakat is truly being used as it should.

Blockchain can also be used to assist in tracking our halal food supply chain.

Islam teaches us that animals must be treated with dignity and care even if those animals will be purposed for food. Using blockchain to monitor our halal food supply chain will help Muslims see how animals are fed, farmed, cared for, slaughtered, packaged, and transported.

In other words, Muslims can witness the entire supply chain of the animal and then make informed decisions as to who to purchase food products from and as well as who to avoid.

Of course, utilizing blockchain alone is not enough. People must do their part to be honest and to ensure trust and ethics in the system.

So, is blockchain halal? Yes.

Conclusion

Blockchain is one of the most versatile and powerful technologies available today, and its potential is just beginning to be explored and harnessed. This technology has a wide variety of applications for all industries and is changing the way that things are being done for the better insha’Allah.

There is no doubt that, as its development progresses, blockchain will allow us to be more interconnected, but it’ll also increase the efficiency of computer processes, protect the privacy and security of our systems and data, and create a new type of internet, more secure and efficient.

And we are already seeing Muslim countries either utilize blockchain technology for their citizens, UAE Pass, or at least begin to develop a blockchain strategy for their nation: Saudi Arabia banking and blockchain, Indonesia and blockchain technology, the UAE Ministry of Health blockchain initiative, and Malaysia’s blockchain strategy.

Blockchain is the next evolution of information technology, and we’re already living it. Are you ready?

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