I was asked about my opinion on this shared post below, so I’ll share it here covering each point. Reading my comments might help people gain a better understanding on how blockchain works. So the comments can be taken for general knowledge in she Allāh.
(1) The post states:
“Trade requires two things: trust between traders and legal recourse when things go wrong. The blockchain is envisaged as leading to traders placing their trust in something other than other traders, i.e. in a technical process.”
Blockchain DOES NOT lead to traders placing their trust in something other than traders. I would love to hear how that conclusion was assumed.
Let me explain something. Today when you buy a product on Amazon (or anywhere else online) using a credit card, Amazon DOES NOT trust you. In fact, even when you walk into a store and buy something using your credit card, they DON’T TRUST you. However, when you make your purchase, using a credit card, the company waits for A SINGLE third party to validate that your card has qualified for the transaction. That third party is the credit card companies “CENTRALIZED NETWORK SYSTEM”. And this is the roll that third party SYSTEM plays in the transaction. Thus there is NO NEED for trust between traders since the verification is done by the third party's systems. So the idea of the “blockchain is envisaged as leading to putting trust in something other than traders” is completely dubious.
I wonder if the writer realizes that the thing which they assume is the problem with blockchain (i.e. trust), is actually the problem when using credit cards and debit cards, eEVEN WHEN standing face to face?
Secondly, the reason why the seller wants to verify the transaction is because he wants to know if it is safe to send or hand over the product, BECAUSE although the transaction is apparently done, the seller does not receive the money in his account instantly: credit card payments take days to settle and reflect in accounts (just like bank transfers and almost all forms of money movement today). If payments were INSTANT and verifiable on the spot, traders wouldn’t even waste their time paying these third party companies because the money is already safe in their accounts.
How does the blockchain solve this problem?
The blockchain is a network where buyer and seller conduct transactions INSTANTLY. The network operates as a third party to verify each transaction and then the verification is viewable on a public ledger that can be viewed online. So for example, if I wanted to order something online from Amazon and I paid them using Bitcoin, the process would go like this:
I open my crypto wallet and send the amount to Amazon’s unique wallet address. As soon as I hit the “send” button the network takes the transaction and puts it in to a block. That block is verified by a computer running the software on the network. Once it confirms that the transaction is true, the large number of random computers on the network (ranging in the thousands) will each check to see if the verification is “true”. Once a large number verify the transaction is valid, CONSENSUS takes place across the network (after a few minutes). Then the crypto is instantly sent to the wallet and the ledger of the transaction is published and viewable online through a unique link (which both me and Amazon can view, and any others who are given the link). So a person gets paid on the spot. There is NO issue of trust here
Is there really a blockchain problem here?
(2) The post states:
“When trust is vitally important for traders, it either comes from a society in which trust is an important matter or will contribute to the growth and development of such a society.And things do break down, and people do go bankrupt and there need to be some competent and knowledgeable people to deal with this, in their turn authorised by and their judgements enforced by someone in authority whom people accept.”
Who people decide to and notto trade with is their own choice and prerogative. Trust is a factor in ANY business deal regardless of the means you use, even face to face transactions. So to assume that the blockchain is opening up the door to bad trust issues is a complete fallacy. If you go to the bank and transfer money to the other side of the world and then you didn’t receive the product, guess what, that is your problem. No one told you to go online and do business on Alibaba’s website. People use their credits cards online at specific sites because they believe that they are reputable sites. Blockchain is a technology that is ran by millions of public computers across the global, it is an open source software. People who deal in crypto, know the risks that they involve themselves with so the issue of bankruptcy is yet another fallacy. If you choose to invest money (even in an Islamic investment) and you go bankrupt due to a failure that is your fault. The blockchain is only a platform and users use it at their own discretion. However, because of its consistency people have relied on it but like anything it could fail, but as of today it has proven strongly reliable. So to talk about the worst case scenario somewhere in the “possible future” to some how prove that as of today it is a problem, isn’t really creditable.
Trust in the blockchain network is simply about the transaction. Because the network consists of millions of random computers running the network, it is next to impossible for fraud transactions to take place. And secondly, from a practical perspective, it really doesn’t matter crypto transactions reflect pretty much instantly.
But just to help you understand what I mean by consensus, let me give you a practical example. Imagine, gmail used a public network where 100 000 random computers across the world ran the network software on their computers (these are called nodes) which are used to verify and send all emails on the network. (Thus in this example, Gmail’s network is not centralized because it runs solely on various unified computers globally. The network is not centralized and owned by google in any specific location on a server. They therefore have no power over it. They can’t verify or falsify any material and nor can anyone else.)
So I write an email to you and hit the send button. That email will first enter the network and a single (node) will establish that ‘I sent on email on network’. Then the rest of the network checks to see if that is ‘true’. If that is true, each node will confirm that the email has been sent. All of this verification is available online live for both me and you too see on a public ledger. Plus it has reached your inbox.
(3) The post states:
“It seems to me that the blockchain obviates these needs and therefore contributes to the spread of a technical society devoid of trust.
The question that the intelligent person must ask is: how is trust restored in and between individuals and in society? And given that such things are natural and undramatic non-technical processes, i.e. they are not gee-whizz and at the press of a button, do we have the patience to engage in that?”
From what I have written previously, it is already clear that the claim that “blockchain leads to a society devoid of trust” quite frankly doesn’t make sense. The result of such understanding is the mistaken idea that blockchain means you close your eyes and start sending crypto coins to people you don’t know. And that is why the writer keeps talking about “trust in the system”. There is a major failure in understanding that trust in the system simply means: transactions are verifiable by the system through a consensus mechanize.
Where is the problem here? especially in contrast to today when transactions rely on one single system to verify transaction. That is like the difference between mutawatir and khabar wahid. There is no comparison.
TO CONCLUDE, MY GENERAL ADVICE TO PEOPLE IS:
My sincerest advice is that if we are going to talk about blockchain technology and crypto, we should at the very least have a sound knowledge of it. And because this technology is fairly new and technical, superficial reading here and there isn’t going to cut it, especially when the technology is constantly advancing. And because there is so much scattered knowledge online, if a person doesn’t have a learned and experienced person in this field to guide him, he will have no clue whether he is reading new or outdated information, and even worse he can’t tell the difference between reliable information and garbage. Understanding blockchain and crypto isn't your average read, it requires some experience and better yet some guidance from people who are well seasoned in the game.
This is even more important, if a person wants to talk about the Islamic ruling regarding this technology. The matter is a contemporary issue, so having an in-depth knowledge of it is necessary before speaking. Giving fatwa based on something without knowledge of it is amongst the greatest forms of ignorance according to scholars. May Allah protect us.
Allāh knows best.