How Bitcoin (the system), bitcoins (the tokens), or both might be incorporated into the mainstream banking system ?

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By Othman Darwish

Recently, there is a growing number of financial institutions and banks that look seriously at the new  revolutionary  technology of Bitcoin and weight  its potential applications.  Bankers  all over the world  are fascinated by Bitcoin technology for the fast, low cost, and secure payment solutions it facilitate, thus, they try to maximize their banks profits by providing new business  services  using new innovated digital currency like Bitcoin .
Banks are now racing to harness  the new innovation of Bitcoin and blockchain technology, they believe that this technology will cut off the cost  and transform the way the business  work. Blockchain  can be defined as the technology behind the cryptocurrecy Bitcoins, it is a decentralized immutable  public ledger that contains the details of every Bitcoin transaction that has ever been completed. Using innovated technical protocols, that ledger has proven to be exceptionally accurate, reliable and secure. In one of its publications, Spanish Bank Stander highlighted that the blockchain technology could cut the bank's infrastructure costs for cross-border payments, securities trading and regulatory compliance by between US$15 – 20 billion per annum by the year of 2022. Cross-border payments  and trading are highly impacting the cash reserve management for financial institutions, as the participation of multiple intermediaries  drag  out settlement time and increase the cost and risk for financial institutions. The potential of blockchain offers a dramatic cut for the settlement time, which  will reduce the amount of cash and collateral that financial institutions will need to hold to mitigate settlement risks. This will be particularly significant for international transactions, which currently take days to complete but can be completed in hours using blockchain technology. Banks can also benefit  from  blockchain which  provide tamper resistance record of identity, including the history of individual's transactions that have ever made, those records could  be used to validate data of individuals or companies participating in the payment transfer, "know your customer".
There are a lot of potential for Bitcoin applicability in Islamic banking and finance. Islamic banks and financial institutions follow the principles of Islamic law. Two of the main principles are: the collection of interest (riba) is forbidden, and loans must be based on profit/loss sharing. Based on that two main principles , Charles W. Evans, analyzed virtual currencies with the requirements of Islamic Banking and Financal, he wrote "BMS (blockchain management systems) … incorporate the principles of maslaha (social benefits of positive externalities) and mutual risk-sharing (as opposed to risk-shifting)" and concluded that Bitcoin is compatible with the principles of Islamic finance. Currently, Bitcoin application in Islamic banking and is very limited, but considering  the world's population, and that 25% of that  population are Muslims, the compatibility of Bitcoins with Islamic finance law could  drive the Islamic Banks  to adapt  and invest  in Bticoin technology which will impact the whole world financial markets.    

In conclusion, Financial service researchers increasingly pay attention to Bitcoin technology and its applications, blockchain, the technology behind the Bitcoin, is proved to be cost efficient and  secure medium of exchanges for cross-border payments and security trading.  The trusted, secure and distributed blockchain  technology creates transparency between banks, and participate in building customers data store to validate individuals and companies. Bitcoin  is compatible with  Islamic Bank Financial law  which represents a large population of the world, however a lot of potential and development is excepted in this area. As a result, with the coming of any new innovated technology  such Bitcoins, banks will employ to innovate new banking  services in order to  expand their profits and reduce their costs! 

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