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DIGITAL ECONOMY & TECHNOLOGY

The Significance of Bitcoin for State Power

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By Jose Miguel Alonso-Trabanco

Much has been said about the problematic implications of cybercurrencies like Bitcoin for contemporary security environments. After all, they provide unsupervised conduits for the cross-border circulation of money in ways that can conceal the identities of those responsible. Needless to say, such advantage can be useful for the various financial operations of malicious nonstate actors, such as transnational criminal organizations, terrorist networks, insurgent militias, hacktivists, and even separatist forces.

Unsurprisingly, evidence confirms that the cryptocurrency ecosystem has attracted the involvement of unsavory groups like ISIS, Hamas, Mexican drug cartels, cybercrime syndicates, and professional money launderers. Plus, as the case of the so-called ‘Silk Road’ illustrates, Bitcoin has become the coin of the realm in the illicit markets which flourish in the deepest corners of the digital lawless underworld known as the ‘dark web.’ Likewise, the esoteric realm of cryptocurrencies is seemingly fertile for all sorts of criminal activities, intrigues, fraudulent businesses, scandals, conspiracy theories, scams, make-believe, and wild unconfirmed rumors. Arguably, this emerging microcosm reflects some of the dark traits associated with human nature since the dawn of time, including greed, the pursuit of power, and deception. However, the instrumental implications of Bitcoin for the practice of statecraft have not been fully understood in a comprehensive manner. Thus, this analysis seeks to clarify in-depth the relevance of Bitcoin for national power and, specifically, to determine how and why it can either strengthen or weaken it in today’s increasingly complex strategic geopolitical realities and geoeconomic dynamics.

Background: What is Bitcoin?

As the first of its kind, the creation of Bitcoin (BTC) is a major evolutionary turning point in the historical development of money. This cryptocurrency was born in a period shaped by the changing Zeitgeist in the wake of the 2008 global systemic financial crisis, particularly growing public concern and discontent over the implementation of unsound monetary policies (i.e. rampant levels of quantitative easing), the oligopolistic structure of Western financial systems, the questionable legitimacy of fiat money, deepening spirals of debt, the reliability of the US dollar as a reserve currency, and the unchecked market power of big banks. Its precedents include the development of electronic payment systems, the proliferation of digital FinTech innovations, and theoretical proposals to formulate virtual equivalents of cash that could be used to carry out anonymous transactions. The invention of Bitcoin was masterminded by someone called Satoshi Nakamoto. However, the consensus indicates that said name is an alias adopted by an individual or a group that wishes to remain anonymous for unclear reasons.

The uniqueness of this cybercurrency is defined by several characteristics. Bitcoin’s governance structure is stateless, unofficial, and decentralized. In practical terms, that means that the BTC environment ‒ which encompasses an integrated financial grid ‒ is not controlled by hierarchical governmental or corporate nerve centers. Instead, the behavior of its organic ecosystem responds to the authority of algorithmic programming. Therefore, unlike fiat money (issued by governments and flowing through arteries owned by private baking entities), nobody is in charge of Bitcoin. Hence, it purports to replace the socio-economic need for mutual trust and faith in the money issued by central banks with an impersonal mathematical accuracy that resembles the automatic perpetual motion of a clockwork mechanism. The design of this singular architecture is underwritten by a couple of ideological frameworks: 1) libertarianism, a philosophical school of thought that seeks to diminish the presence of the state in the sphere of economic matters as much as possible; and 2) techno-utopianism, a movement which believes that high-tech can offer functional solutions for every conceivable societal problem.

Moreover, Bitcoin’s technical properties are also noteworthy. Access to its operational interfaces (wallets) is protected by cryptographic keys and its technological engine is the automatic bookkeeping system known as ‘blockchain,’ identified as one of the chief drivers of the so-called “Fourth Industrial Revolution.” A blockchain is a collective and self-sustaining digital systemic record that is periodically updated in a way that makes it inalterable. In addition, as a horizontal and leaderless domain, the Bitcoin community gathers its users and holders through a peer-to-peer protocol. Furthermore, although it does not provide full anonymity, BTC facilitates pseudonymous transactions. In other words, people involved in BTC can ‒to a certain extent‒ hide their identities and protect their personal privacy in a manner that would not be possible through the services offered by conventional third-party platforms.

On the other hand, the process through which new Bitcoin units are minted does not involve either printing legal tender or fractional reserve banking. Known as ‘mining,’ it entails the performance of mathematical operations to solve increasingly complex puzzles as a step that is necessary for the collective validation of transactions (‘proof of work’). Once the equation has been deciphered by one of the advanced computers connected to the Bitcoin network, the winner is rewarded with new Bitcoins. The quest to harvest this incentive is what keeps the whole thing going. In other words, BTC mining includes both collaborative and competitive ingredients. Cryptocurrency mining requires elements such as state-of-the-art hardware with powerful computational capabilities and an abundant source of electricity. Accordingly, this flourishing industry is intensive in terms of both technological resources and energy. As some observers have noted, the artificial difficulty of the process is supposed to mimic the hard effort that is needed to extract precious metals such as gold and silver, both of which have acted as universal monetary substances for centuries due to their natural scarcity, intrinsic value, aesthetic beauty, and reputational prestige. Hence, it has been argued that BTC embodies the conceptual model of ‘digital metallism.’

There are unsettled debates in the rising intellectual and academic universe of ‘cryptonomics.’ Some analysts claim that, not unlike fiat money, Bitcoin has no intrinsic worth. According to this interpretative perspective, Bitcoin acts a lot like a virtual speculative asset whose value is determined by the behavior of market forces and the accompanying expectations to make a quick profit. In contrast, others believe that Bitcoin is tacitly backed by the work that is needed to ensure its survival and its large consumption of energy, as well as by the underlying support of material components which undergird its circuitry, such as servers, internet infrastructure, specialized computers, chips, graphics cards, power grids and so on. In other words, despite being a purely virtual currency, the existence of BTC goes beyond the dimension of digital code thanks to the various pillars which anchor it to physical reality.

On the other hand, scholars like Saifadean Ammous and Niall Ferguson emphasize Bitcoin’s peculiar traits and the potential shockwaves of this disruptive FinTech invention. These thinkers argue that Bitcoin’s long-range significance goes much further, as it heralds nothing less than a revolution that represents a new ground-breaking chapter in the long-range historical trajectory of money, after decades of constant debasement. This idea of Bitcoin as a visionary innovation that will redefine the world’s monetary standards is seemingly supported by the influence of this cybercurrency in the creation of a constellation of hundreds of spin-offs and offshoots. Likewise, the introduction of BTC was a pivotal breakthrough that prompted the subsequent development of both ‘stablecoins’ launched by private companies and Central Bank Digital Currencies (CBDCs).

Finally, the Bitcoin universe is remarkably plural. It contains a heterogenous myriad of inhabitants, participants and stakeholders. Some of its early adopters were tech-savvy enthusiasts, libertarian activists, dissidents living under political repression, outlaws, start-up innovators, speculative traders, scholars, cryptographic experts, and cyber-anarchists, amongst others. However, the circulation of BTC is no longer a marginal phenomenon confined to some obscure niches reserved for an elite of intrepid merchants and enlightened initiates who share some sort of arcane knowledge. By now, its projection has become substantially wider as it has drawn the attention and active involvement of corporate heavyweights, mainstream digital platforms, investment banks, traditional financial firms, policymakers, regulatory authorities, law enforcement, ordinary investors and even curious members of the general public. In order to keep things in perspective, it is pertinent to highlight that Bitcoin’s market cap is already superior to the GDP of countries like Chile, Portugal and New Zealand.

Hypothetical Possibilities

In theory, the mere existence of a nonstate cybercurrency like Bitcoin challenges one of the most emblematic hallmarks of the modern Westphalian conception of national sovereignty: the monopoly of states as the only issuers of legal tender within their territorial perimeter. However, this is not just a symbolic attribution. Monetary policy is a tool that states use to direct the performance of their economies, influence their international economic exchanges, and manage their governmental expenses. Thus, the circulation of decentralized unofficial cryptocurrencies can hypothetically jeopardize said ability by displacing conventional currencies issued by central banks. Furthermore, unlike hard currencies, BTC is not backed by the national strength of any great power, or any other state for that matter.

Nevertheless, those realities do not mean that Bitcoin is necessarily always detrimental for national power or inconsequential for it. In fact ‒ Inspired by the analytical lens of strategic foresight ‒ several potential opportunities to harness Bitcoin as an instrumental tool of states to pursue their national interests have been identified. First, special operations units and intelligence services can rely on Bitcoin’s discreet financial channels as users in order to fund clandestine activities, reward agents and informants, make purchases of illicit items in black markets, carry out all sorts of undisclosed payments, and even bankroll agitation in foreign countries as a way to instigate instability. Likewise, Bitcoin represents a catalyst for the development of better capabilities in terms of financial intelligence (FININT). Specifically, a better understanding of the BTC operational environment would enhance the ability of intelligence agencies and law enforcement to track transactions denominated in cryptocurrencies and discover the real-life identities of the corresponding users. This upgrade would increase the coercive power of states to disrupt the alternative financial conduits employed by their enemies, including nonstate actors and hostile states regarded as strategic competitors. In fact, such course of action has even been endorsed by former high-ranking CIA officials.

On the other hand, states can also engage the world of unofficial cryptocurrencies like BTC in a beneficial way through the encouragement of mining as a productive activity on a large scale. This undertaking can bring wealth, bolster economic dynamism, and support technological development. Nevertheless, the successful implementation of this option requires a systematic industrial policy and economies of scale, as well as comparative advantages related to the availability of affordable electricity and access to sophisticated equipment. Moreover, due to the wild fluctuations of Bitcoin’s exchange rates, this pursuit would face the typical challenges associated with the extraction of commodities whose market prices are highly volatile. Yet, as long as favorable circumstances prevail, this unconventional industry can represent an option worth considering to increase prosperity when participation in more traditional options is difficult or if there are obstacles which hamper the ability to make profits through international economic exchanges.

Finally, an even more counterintuitive possibility is the accumulation of BTC holdings in order to diversify a country’s foreign exchange reserves. For example, Indian analyst Ashwath Komath argues that said recommendation makes sense for the national interests of states which seek to adopt a nonaligned foreign policy orientation, a distinctive trait of Indian statecraft for decades. Unlike assets denominated in fiat currencies, BTC cannot be frozen, sanctioned, or confiscated in case conflict breaks out. Likewise, adding this cybercurrency to a state’s coffers would also prevent overreliance on foreign financial systems and strengthen Delhi’s position towards both the West and China, the major players in the ongoing strategic competition to shape the architecture of the global monetary order in the coming decades. Furthermore, a country like India could be uniquely positioned to embrace Bitcoin as a secondary reserve currency, especially considering its growing participation in the field of high-tech innovations.

Nonetheless, there are reasons why decentralized cryptocurrencies like Bitcoin could be potentially harmful for national power. Since their value fluctuates so drastically, they are vulnerable to speculative attacks, which could be motivated by economic and political agendas. Furthermore, the incremental progress of quantum computing can compromise their protective cryptographic shields. Plus, if their internal circulation reaches substantial proportions, then they can marginalize the national currency, which would entail the partial degradation of monetary sovereignty. Furthermore, powerful rival states can seek to establish a dominant high ground in the environment of a cybercurrency with a considerable degree of international projection in a quest to harness the resulting asymmetric leverage vis-à-vis other states whose position there is comparatively weaker. Another detrimental consequence of embracing decentralized virtual currencies is the exposure to the potential backlash of the states which control the top reserve currencies. In other words, there is no guarantee that Bitcoin and its derivatives will necessarily boost national power. Thus, under certain conditions, relying on them can backfire.

Empirical Examples

Aside from exploratory forecasts, there are already several empirical examples which demonstrate how states are adjusting in the monetary realm based on their expectations about how said currencies might reinforce or damage national power.

Perhaps the most paradigmatic example is El Salvador. Back in 2021, this Central American country became the first national state to formally accept BTC as fully legal tender in an ambitious experimental attempt to merge its economy with the ecosystem of such cybercurrency. The purpose of this fateful decision responded to economic interests, such as the desire to upgrade the profile of the Salvadorean economy, boost the flow of remittances from overseas, position itself as regional hub for crypto mining as a source of wealth, and correct financial imbalances. Nevertheless, this measure was not just about the pursuit of prosperity. Considering the background of El Salvador as a peripheral theatre for proxy wars during the late Cold War, BTC can ‒ as an asset that represents a strategic vector ‒ help this small nation navigate independently under an intense strategic competition between Washington and Beijing (a rivalry whose fallout is felt in the sphere of money and finance) without having to take sides. The recent decline of Bitcoin’s value raises reasonable doubts about the wisdom of this decision, but only time will tell if the benefits outweigh the costs.

On the other hand, it is known that entities affiliated with the US state establishment ‒ including the foreign policy complex, intelligence agencies, and think tanks involved in strategic studies ‒ are actively interested in surveillance of the Bitcoin ecosystem because it can be exploited by nonstate and state actors regarded by the US as enemies. For example, the revelations shared by whistle-blower Edward Snowden indicate that the NSA has been intensively trying to find ways to uncover the identities of users who belong to the BTC community through measures like cyberespionage, technical interference, and even the design of misleading crypto platforms that have no intention to protect the privacy of their members. Years later, the current CIA Director William Burns openly admitted (in the context of a public event) that the agency under his leadership is running several projects focused on cybercurrencies, though no precise details were disclosed.

Furthermore, another case worth considering is the Russian Federation. This Eurasian state was at first reluctant to embrace cryptocurrencies like Bitcoin but then it reassessed its position after it realized that crypto represented certain opportunities. Thereafter, Moscow has nourished the development of a domestic industry involved in Bitcoin mining in the Russian Far East. It must be noted that Siberia offers the comparative advantages to do so on a large scale, including the availability of hydropower as a generous source of cheap electricity, infrastructure that supports an optimal internet connectivity, permissive regulatory frameworks, and a cold weather that mitigates the excessive heat that is generated as a by-product of this activity. Moreover, the imposition of Western sanctions after the takeover of Crimea has encouraged the Kremlin to double down in this pursuit, as it generates wealth which does not flow through financial arteries controlled by hostile states and furthers technological progress. It is important to emphasize that, for Russia, access to international finance and cutting-edge technologies is a national security priority because, without those elements, the national power of the Russian state would be substantially reduced in the near future. Perhaps not surprisingly, after the 2022 invasion of Ukraine, Moscow has reportedly been examining the pertinence of accepting payments denominated in cryptocurrency in order to counter the ongoing efforts to restrict its exports of energy, including both oil and natural gas.

In contrast, the case of the China points in a very different direction. Initially, the Middle Kingdom was one of the enthusiastic early adopters of Bitcoin and similar cryptocurrencies. At some point, China was by far the undisputed global leader of mining operations. Nevertheless, Beijing moved towards a diametrically different position as it implemented a series of increasingly draconian restrictions, including the shutdown of mainland cryptocurrency exchanges, heavy-handed measures of technical interference, the closure of BTC mining facilities and even mass arrests of Bitcoin users. It is believed that this course of action responded to the need of preventing capital flight and undermining an activity which could have posed meaningful challenges for the energy security of the Chinese state. However, another possible motivation was likely an interest in casting aside a potential source of unwanted competition for the release of the e-CNY, the official currency designed by the People’s Bank of China as a digital version of the national legal tender. It is unknown if this was the plan all along, but it is suggestive that the idea of aggrandizing the proportions of something in order to get rid of it afterwards (the so-called ‘principle of reversal’) is consistent with the prescriptions found in classical Chinese strategic thinking.

Lessons Learned

Far from being neutral, Bitcoin entails significant ramifications for national power, understood as the combined ability of states to further their interests through their resources, assets, and capabilities. Just like any other invention, said cybercurrency is an instrumental item that can be harnessed, leveraged, exploited, and/or manipulated in the practice of statecraft. As such, it can offer strategic, diplomatic, economic and technological benefits worth harvesting. Nevertheless, though there is no single recipe to engage this FinTech innovation, exploratory forecasts and the scrutiny of empirical developments indicate that it can be employed as a tool to carry out black ops, a catalyst for the optimization of financial intelligence, a facilitator of industrial development, a source of national wealth, an alternative reserve currency, and even an unconventional vector of grand strategy which can enable the performance of balancing acts. Needless to say, such attributes make it attractive under conditions of heightened geopolitical and geoeconomic tensions. However, as double-edged sword, Bitcoin can also be detrimental for national power in some circumstances. Paraphrasing a sharp observation made by Joseph de la Vega about the contradictory nature of high finance in 17th century Amsterdam in his legendary treatise “Confusion of Confusions,” the paradoxical ambivalence of BTC is that can be both a treasure of usefulness for the intrepid and ‒ at the same time‒  a treacherous road that leads to the downfall of the unwise.

Thus Article was originally published on December 17, 2022 in the geopoliticalmonitor.com


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DIGITAL ECONOMY & TECHNOLOGY

Aeon Bank Officially Launches Malaysia’s First Islamic Digital Bank

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Aeon Bank (M) Bhd has officially launched Malaysia’s first Islamic digital bank, marking a significant milestone in the country’s banking sector. The launch aims to provide comprehensive, Shariah-compliant digital banking solutions to all Malaysians, setting a new standard for financial services in the region.

Comprehensive Shariah-Compliant Solutions

At the public launch ceremony, Chief Executive Officer Raja Teh Maimunah Raja Abdul Aziz outlined the bank’s vision. “We aim to offer safe, simplified, and inclusive Shariah-compliant digital banking solutions such as savings accounts, retirement savings plans, various borrowing options, and payment services,” she stated. “This will allow us to offer financial services to our customers comprehensively, helping us achieve our mission.”

Innovative Banking Products

The Islamic Digital Bank’s services currently include personal banking products like Savings Account-i and customizable Savings Pots with optimization features. These products were developed and refined through extensive testing phases. Raja Teh Maimunah highlighted the success of the beta testing phase, which involved over 1,800 participants over 12 weeks. “The beta test was meant to identify any necessary improvements and fixes. We received a lot of positive feedback on the overall architecture. We did not rush the test and also conducted an alpha test before the beta, ensuring platform stability,” she explained.

Seamless User Experience

Users who activate their Aeon Bank account will immediately gain access to their virtual Aeon Bank x Visa Debit Card-i and can request a physical Debit Card-i. To celebrate the public launch, Aeon Bank is offering a sign-up bonus of 3,000 Aeon Points and triple Aeon Points for transactions using the Aeon Bank x Visa Debit Card-i, along with a profit rate of 3.88% per annum.

Additionally, Aeon Points Programme members will have their memberships automatically linked with the Aeon Bank (M) app, providing extra benefits and rewards to Aeon Group’s outlets and merchants.

Revolutionizing Digital Banking in Malaysia

Jointly owned by Aeon Financial Service Ltd and Aeon Credit Service (M) Bhd, both subsidiaries of Japan’s largest retail group Aeon Group, Aeon Bank is set to revolutionize digital banking in Malaysia. Raja Teh Maimunah expressed optimism about the bank’s potential to perform detailed financial analyses and promote financial inclusion.

Competitive Landscape

In addition to Aeon Bank, a consortium led by KAF Investment Bank Sdn Bhd has also secured an Islamic digital bank license from Bank Negara Malaysia. Other recipients of digital banking licenses include a consortium of Boost Holdings Sdn Bhd and RHB Bank Bhd, a consortium led by GXS Bank Pte Ltd and Kuok Brothers Sdn Bhd, and a consortium led by Sea Ltd and YTL Digital Capital Sdn Bhd.

Promoting Financial Inclusion

With the launch of Malaysia’s first Islamic Digital Bank, Aeon Bank is poised to make significant strides in promoting financial inclusion. The bank’s innovative products and services are designed to cater to the diverse needs of Malaysian consumers, providing them with Shariah-compliant, convenient, and efficient banking solutions. This initiative aligns with the broader goals of enhancing financial accessibility and inclusion across the country.

As Aeon Bank continues to expand its offerings and reach, it is expected to play a pivotal role in shaping the future of digital banking in Malaysia. By leveraging advanced technology and adhering to Shariah principles, Aeon Bank aims to provide a robust banking platform that meets the evolving needs of its customers. The successful launch of Malaysia’s first Islamic Digital Bank marks a new era in the country’s financial landscape, promising a future of inclusive, innovative, and customer-centric banking services.


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DIGITAL ECONOMY & TECHNOLOGY

Crypto Miners See ‘Enormous Potential’ in the Gulf

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  • Crypto miners drawn to Gulf
  • Electricity is 80% of cost
  • Tech-savvy population

With cryptocurrencies edging up again after last weekend’s “halving” – in which the rewards Bitcoin miners get for solving problems is cut in two to maintain scarcity – these are heady days for holders of Bitcoin and other virtual currencies. Bitcoin miners have been attracted to the Gulf by cheap electricity and established infrastructure.

“GCC countries have enormous potential in relation to the development of the Bitcoin mining sector,” Abdumalik Mirakhmedov, executive president of Dubai-based Bitcoin miner GDA, told AGBI. “In the past year, the region has been experiencing active growth, with several significant launches.”

Bitcoin “mining” is a process in which information in a blockchain block is validated by specialist machines. When a complex solution is reached by this equipment, a reward – in the form of Bitcoin and fees for the work done – is then issued. Initially, mining was often done in back rooms and sometimes-unofficial data centres. These days, however, it is increasingly dominated by larger businesses.

This equipment, however, also requires a lot of electricity.  In 2023, the Cambridge Bitcoin Electricity Consumption Index (CBECI) estimated global electricity usage associated with Bitcoin mining to be around 120 terawatt hours – about the same as Australia’s total electricity consumption that year.

Working day and night, Bitcoin miners also generate a lot of heat.  In colder climates, this has sometimes been repurposed to provide heating.  In the Gulf, however, the heat creates even greater electricity consumption, as powered cooling systems are used to keep the machinery within its operational temperature range.

A further problem in the Gulf recently has often been the lack of a clear regulatory framework for the industry – sometimes because of a general suspicion of cryptocurrencies.  Kuwait, for example, has banned all virtual asset transactions, investments and mining. In Saudi Arabia and Qatar, crypto has only quasi-legal status.

Yet, despite the obstacles, “the GCC region is the world’s sixth-largest adopter,” said Paige Aarhus, Paris-based director of crypto news and analysis site DL News. And figures from Chainalysis, a US-based cryptocurrency software development company, estimate that total crypto transaction levels in Saudi Arabia alone amounted to $36 billion and in the first two months of 2024 it hit $6 billion.

In the UAE and Oman, too, a more positive approach has been taken. A regulatory framework has been established, enabling facilities such as the DMCC Crypto Centre in Dubai to provide a wide range of services, including mining. In Oman, $800 million is now invested in crypto mining in the Sultanate. Abu Dhabi’s Green Data City in Salalah was Oman’s first licensed mining entity, while Exahertz International has also now joined it in the southern – and slightly cooler – Omani city.

Power plays

With electricity representing around 75-80 percent of a data farm’s average cost, cheap power is a major draw for miners when it comes to the Gulf. In Oman, although subsidies for electricity are being phased out, typical costs remain at around $0.05 per kilowatt – much less than the US average of $0.23, which is itself lower than average tariffs in Europe. “Innovations such as liquid cooling and immersion cooling are expected to significantly contribute to the expansion of operations within the region,” says Mirakhmedov.

This was recognised at the recent Global Digital Mining Summit hosted by mining server manufacturer Bitmain, held in Muscat. The “Hydro-mining Wins in the Desert” gathering highlighted progress in water cooling.

Green, renewable energy from solar is also available in abundance in Oman and other Gulf countries, providing miners with more sustainable credentials. At the same time, the Gulf offers a developed infrastructure and few restrictions on land for large data farms.

Oman, and other Gulf states, have also all invested heavily in education and training in IT, producing large, tech-savvy populations. “Key benefits of the Gulf also include the region’s access to capital and the ease of doing business,” says Mirakhmedov.  These benefits may help Gulf miners weather the storm of the recent halving.

Larger mining companies, or groups of miners, stand a better chance of absorbing that loss, while “some smaller mining companies may well go out of business as a result,” Aarhus says. With miners in the Gulf generally larger operations with lower overall costs, they may now be well placed for further expansion. More data farms could therefore be springing up around the region, in the months to come.


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DIGITAL ECONOMY & TECHNOLOGY

Zakat on Stocks and Shares: A Modern Dilemma Solved

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In today’s fast-paced world, where the buzz of the stock market is as familiar as morning coffee, a timeless tradition meets the modern age: the practice of paying Zakat on stocks and shares. This intersection of faith and finance might seem like a modern dilemma, but “Zakat on Stocks and Shares: A Modern Dilemma Solved” can be achieved with a blend of ancient wisdom and contemporary understanding. Let’s dive into the world of stocks, shares, and spiritual duty, and discover how this blend enriches both our wallets and our souls.

Understanding Zakat in the Digital Age

Zakat, one of the Five Pillars of Islam, is a form of almsgiving to the less fortunate, calculated as a percentage of one’s wealth. Traditionally, it applied to tangible assets like gold, silver, and livestock. But what happens when your wealth is tied up in the intangible world of the stock market?

Imagine you’re in a vast, bustling city where skyscrapers are filled with traders, analysts, and investors, all meticulously tracking the rise and fall of stocks. In this modern jungle, your investments grow, sometimes unpredictably, reflecting not just your financial acumen but also the global economic heartbeat. Here lies our modern dilemma: how do we apply the ancient practice of Zakat to this digital-age wealth?

Calculating Zakat on Stocks and Shares

The key to solving this puzzle lies in understanding the nature of your investment. Are your stocks purely for capital gain, or do they yield dividends from companies that deal in tangible goods and services? The answer guides how Zakat is calculated on these modern assets.

  1. For Long-Term Investment: If you hold stocks as a long-term investment, Zakat is due on their market value. Think of it as if you’re a farmer with fields (stocks) that grow crops (dividends). Just as a farmer would calculate Zakat on the harvest, you calculate Zakat on the annual value of your stocks.
  2. For Active Trading: If you’re an active trader, your stocks are akin to the goods in a merchant’s caravan, constantly moving and changing. Here, Zakat is calculated based on the total value of your trading portfolio at the end of the lunar year.

Stories from the Stock Market

Let’s take a moment to walk in the shoes of Aisha, a dedicated software engineer by day and a savvy investor by night. Aisha’s portfolio is a mix of long-term tech stocks and short-term trades in renewable energy. When the time comes to calculate her Zakat, she reflects on the nature of each investment. Her tech stocks, akin to a golden wheat field, are valued at their current market price, while her active trades are tallied up like a merchant’s inventory at year-end. This careful consideration ensures Aisha fulfills her spiritual obligations without overlooking her modern investments.

Similarly, Omar, a retired teacher with a passion for philanthropy, uses his dividends from healthcare stocks to support various charities. By calculating the Zakat on his shares, Omar turns his investments into a powerful tool for social good, illustrating how ancient practices can meet modern philanthropy.

Embracing Modern Dilemmas with Ancient Wisdom

The dilemma of paying Zakat on stocks and shares illustrates a broader lesson: that our faith and traditions are not static, but rather, they evolve with us. As we navigate the complexities of the modern financial world, we’re reminded of the adaptability and enduring relevance of Islamic teachings.

Zakat on stocks and shares: a modern dilemma solved, not just through numbers and calculations, but through the stories of individuals who bridge the gap between their faith and their finances. In doing so, they enrich not only their own lives but also the lives of those around them, weaving a tapestry of spiritual and material prosperity that spans the ages.

In conclusion, the practice of paying Zakat on stocks and shares: a modern dilemma solved, offers a fascinating glimpse into how timeless traditions adapt to contemporary realities. It’s a journey that not only addresses a modern financial challenge but also deepens our connection to our faith, our community, and the wider world. As we move forward, let’s carry this wisdom in our hearts and portfolios, ensuring that our investments reflect our values and contribute to a better world for all.


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