From my blog post:
Another important thing to note is that akin to gold, Bitcoin does not originate through interest-bearing loans, as fiat currencies do. Gold and Bitcoin are both mined, but their mining processes are quite different. Let’s explore how they are mined and the proof of work and energy exerted in each case:
Gold Mining :
– Gold mining involves extracting physical gold from the Earth’s crust. Miners use various methods, such as placer mining (panning for gold in riverbeds) or underground mining (digging tunnels to access gold veins).
– The proof of work in gold mining is the physical labor and machinery required to extract gold from the ground. This process can be energy-intensive, involving heavy equipment and transportation.
Bitcoin Mining :
– Bitcoin mining is a digital process where miners use powerful computers to solve complex mathematical puzzles. These puzzles secure the Bitcoin network by confirming and validating transactions in a decentralized manner.
– The proof of work in Bitcoin mining is the computational power and energy expended by miners to solve these puzzles. Miners compete to find a solution, and the first one to do so gets rewarded with newly created bitcoins. This process, called “proof of work,” is intentionally resource-intensive to maintain network security.
In summary, both gold and Bitcoin mining are linked to a “proof of work” (POW) concept, it’s energy expenditure. In contrast, fiat paper money creation by central banks is not tied to mining or proof of work; it’s based on monetary policy decisions and riba debt creation & management.
Bitcoin enthusiasts recognize that it is prudent to have some gold as a store of value. Particularly if you are planning to only carry out face-to-face transactions within a small community level. However, it is not feasible to conduct long-distance transactions with gold. In fact, on this gold exhibits several weaknesses when compared to Bitcoin.
Weaknesses of gold include:
• Not easily divisible for small & micropayments.
• Portability is challenging, especially when transporting several kilograms overseas.
• It’s not digital.
• Final settlement and physical delivery are notably slow and expensive, especially for large quantities.
• Verification, such as melting gold, is costly and burdensome.
• Secure storage comes at a high cost.
• Gold is susceptible to centralization.
• Governments have historically easily confiscated people’s gold.
To address some of these limitations, currencies backed by gold were established. This enabled people to trade value more portably over long distances and engage in smaller transactions, albeit it also introduced new constraints, such as the reliance on Trusted Third Parties (Banks).
Gold-backed fiat currencies ceased to exist after President Nixon completely removed the gold backing of the US dollar in 1971. The dollar, which is the strongest among all fiat currencies and the one to which all other fiat currencies are tied due to America’s military power, transitioned into a currency backed by debt. This transition made it easy to print and create currency at will.
We currently have multiple nation-state government paper fiat currencies, which are not backed by anything. Bitcoin enthusiasts argue that if the world were to return to the gold standard, the same situation would recur. In other words, a gold standard prompts governments to recognize the limitations of gold. Consequently, gold-backed fiat currency is introduced as a solution, leading to third-party trusted entities (banks) printing more money than they have in reserves due to the irresistible power and temptation to print money at will. Thus, we end up back where we started.
The parallels between the One Ring in the film “The Lord of the Rings” and the power of central banks, particularly the Federal Reserve, lie in their ability to exert control and influence over vast realms. Just as the One Ring promises dominance over Middle-earth, central banks wield significant power over economies through their control of monetary policy, including interest rates and the supply of fiat money. Like the One Ring’s corrupting influence on anyone who puts it on, the unchecked power of usurious riba central banks lead to corruption and misuse. The temptation to keep issuing interest bearing loans results in inflation and economic instability for the average person, much like the corrupting influence of the Ring leads individuals to misuse its power for their own ends. Just as the Ring’s malevolent will seeks to return to its evil master, the unchecked power of usurious central banks serves the interests of a select few at the expense of the rest of humanity. Exacerbating global wealth inequality and entrenching the influence of a parasitic financial elite.
Some Muslims have courageously attempted to reintroduce a gold standard. The leader of this movement was Shaykh Abdalqadir as-Sufi, born Ian Stewart Dallas on August 1, 1930. He was the Shaykh of the Darqawi-Shadhili-Qadiri Tariqa, the founder of the Murabitun World Movement, and the author of numerous books on Islam, Sufism, and political theory. He and his students, especially Shaykh Umar Vadillo, have fought against fiat currencies for decades.
Unfortunately, their noble and brave efforts kept encountering roadblocks, as stated by Shaykh Dr. Abdalqadir as-Sufi himself in an article.
“The defence mechanisms of today’s late capitalism and its crisis management surrounding the buying, moving and minting of gold have surrounded it with prohibitive pricing and taxation.”
~ Sh Abdalqadir as-Sufi
Read:
“It only works in a physical jurisdiction: Where to mint, where to store, how to transport, how to coordinate electronic payments, how to deal with banking regulations, taxes and government interference? Theoretically, it was possible to instantiate an entirely independent ecosystem of issuance, storage, transport and trade using gold, but real progress on it was very slow.
The only real Islamic alternative ever proposed was the Gold Dinar Movement. Starting in parallel (and in many respects earlier) than ‘‘Islamic’’ banking, (with the first modern Dinar minted in 1992), it was incisively accurate in its assessment and proposed remedy to the money problem:
The Return to the Gold Dinar.
’’This was an earlier time, when the golden tool in the fight against fiat was literally gold, which was then popularized by Austrian economics, advocated by upright leaders like Ron Paul, and adopted by grassroots activists like Bernard von NotHaus. The Muslim world saw its own spate of activism for sound money, led by its most vocal proponent, Umar Vadillo, and associated initiatives like Wakala Nusantara, Dinar First and my own Dinar Wakala. The Kelantan State government’s launch of Gold Dinar was our own El Zonte moment, full of euphoria and promise that made waves globally. The passion and courage of this vibrant lot of Warrior Sufis represented the best of modern-day Muslims: Profoundly knowledgeable people, engaged in grassroots activism, to fix the most pressing challenges of the contemporary world.
However, the primary strength of gold, its physical indestructibility, came in the way of its adoption: Logistic and regulatory hindrances prevented free flow of physical gold coins across national boundaries. In the words of its founder, Shaykh Abdalqadir, “The defense mechanisms of today’s late capitalism and its crisis management surrounding the buying, moving and minting of gold have surrounded it with prohibitive pricing and taxation.” It continues to serve as a galvanizing symbol of the fight against Riba, but making it a practical inflationary hedge, or a broader Ummah-level movement for sound money, proved an elusive goal.”
– Asim Shiraz
See:
Shaykh Mu’awiyah Tucker has stated regarding those Muslims who still reminisce and advocate for a gold standard in the age of the internet:
“Every Muslim who calls for a return to the gold standard in the digital age is essentially advocating for a slowdown of international commerce and online businesses, which could potentially cripple Muslim nations.”
See:
A new, better solution is needed, and there is one. Bitcoin has overcome the flaws of gold without the need for trusted third parties, thanks to a decentralized, verifiable online ledger. As the famous Austrian economist put it, it’s now a well-known quote in Bitcoin circles:
‘‘I don’t believe we shall ever have a good money again before we take the thing out of the hands of government, that is, we can’t take them violently out of the hands of government, all we can do is by some sly roundabout way introduce something they can’t stop.’’
~ Friedrich Hayek in 1984
Friedrich Hayek’s quote reminds me of something I heard Shaykh Hamza Yusuf say when discussing riba fiat currencies:
“The Sharia, the sacred law of Islam, does not recognize paper money unless it is backed by gold or silver. Muslims using paper money today (none of which is backed by gold or silver) will, insha’Allah, not incur punishment from God because humanity is forced by central banks to use them. However, Muslims are encouraged to try and find new alternative innovative ways to get around this tribulation of fiat currencies.”
In particular, that last bit (‘‘Muslims are encouraged to try and find new alternative innovative ways to get around this tribulation of fiat currencies’’) truly brings Bitcoin to mind as the premier solution for Muslims who want to begin distancing themselves from the current riba-based fiat monetary system.
“I still believe that, so long as the management of money is in the hands of government, the gold standard with all its imperfections is the only tolerably safe system. But we certainly can do better than that, though not through government.”
– Friedrich Hayek
See:
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