Introduction
Judaism is based on a construct of ethical codes of conduct that are taught in weekly meetings. Each week on Saturday mornings, Jews gather to read a weekly portion of the Torah (Old Testament) to learn about the principles of living in harmony with Jewish ethics. One of these principles is the prohibition of charging interest on a loan. The prohibition is mentioned in the weekly Torah reading. Ki-Tzei.
bitcoin = the payment protocol and network.
bitcoin = the currency.
The prohibition of interest
The prohibition on interest, which was initially difficult for modern investors to understand, has its roots in serious consequences of non-payment in pre-biblical times, which often led to debt bondage and slavery of the debtor and his family. This ban was intended to prevent such disastrous results. The question arises: why is charging interest a standard practice in modern times?
Inflation and default risk
Interest usually serves to offset the loss of purchasing power caused by monetary inflation. The money supply matters. How much of the total do you own? What happens if there are 1,000 units of money in the economy, you have 100, and the government increases the supply by 1,000 units? Your money is worth half what it was before. To compensate for inflation, market participants use mechanisms such as interest rates.
Furthermore, giving up money generates an opportunity cost. The return you could get on your money in the future if you got rid of that money today should, in theory, be positive given the risk of loss and the fact that you can't use the money for other investments.
Judaism and credit
Jewish law prohibits charging interest, but does not prohibit trading and exchanging money, including loans. In fact, The borrower remains responsible for paying the debt in full. The loans are considered positive and are consistent with the spirit of Judaism of caring for others. However, from an ethical point of view, opportunity costs should not influence the demand for interest rates. Unfortunately, strict interest restrictions led to a decline in lending, which negatively affected the economy. A solution had to be found.
The name is Iska.
Jewish scholars invented a clever solution to the need to collect interest, called Heter Iska. An arrangement under which two parties become business partners, rather than one party providing a loan to the other. This type of business is called Stinging.
In this venture no interest is paid, but a complex partnership is formed where part of the profits are shared with the lender. The reasoning is that since both parties are partners, they also share the risk of the business and therefore sharing the profits is ethically justifiable and is not considered an interest payment.
While this is an interesting approach to creating modern guidelines that follow ancient Jewish law, it may not fully address the core of the issue, i.e. the ethical aspect. After all, charging interest is prohibited. Not only in Judaism, but in all monotheistic religions. I suggest that the problem could be solved ethically with bitcoin.
bitcoin, inflation and ethics
bitcoin is money that eliminates the need for lenders to charge interest to offset the loss of purchasing power, since bitcoin is disinflationary, meaning the rate of inflation (new supply) decreases over time. According to the protocol's code, mining rewards are halved approximately every four years until the last fraction of a bitcoin is mined in 2140. After that, the inflation rate will be zero. These rules are encoded in the protocol and cannot be changed arbitrarily. bitcoin is designed to increase purchasing power over time, forever.
This marks a significant technological advance. Unlike other currencies with elastic supply that can expand with demand, such as precious metals or fiat currencies, bitcoin has a perfectly inelastic supply.
Lending on a bitcoin standard
In theory, in a bitcoin standard, where bitcoin is the primary unit account, someone who lends bitcoin does not need to charge interest to compensate for inflation, because theoretically, the bitcoin that someone has lent gains purchasing power over time and will have gained purchasing power. . at the time the loan is repaid.
Repaying loans denominated in bitcoin poses challenges whenever transactions are made in fiat currencies such as dollars or euros. Converting bitcoin to fiat for commercial transactions subjects funds to monetary inflation, which contrasts with bitcoin's inherent value appreciation due to its limited supply. For bitcoin-based lending to work, a shift to a global bitcoin standard is necessary. The global economy is very far from that. However, there is continued acceptance of bitcoin as bitcoin-as-legal-tender-5-countries-that-could-be-next-in-line-to-adopt-15228761.htm”>legitimate payment method and there are a number of startups and established financial institutions offering bitcoin-based loans.
It remains to be seen which bitcoin service providers will remain trustworthy and competitive. But the trend is very clear: bitcoin is becoming an increasingly important part of the global economy.
In 2023, several of the world's largest asset management firms submitted bitcoin ETF applications for review by the SEC. These include BlackRock, Fidelity, Invesco, Franklin Templeton Investments, Wisdom Tree, VanEck, Global X, Ark Invest, Valkyrie, Bitwise Asset Management and Galaxy Digital. bitcoin-newsletter-12-bitcoin-and-finance”>which have approximately $16.7 trillion in total assets under management (AUM).
bitcoin is kosher
bitcoin serves as a tool to overcome ethical barriers in lending, aligning with Jewish principles. In this context, “kosher” goes beyond its traditional use as food and denotes an action consistent with Jewish ethics. bitcoin is kosher because, as disinflationary hard money, it removes the economic incentive to charge interest. A concept so abhorrent that it has become religious law not to do so. bitcoin has the properties of serving as a monetary base layer for a financial system consistent with Jewish ethics.
bitcoin and Jewish ethics
In Judaism, personal enrichment through others is considered unethical. A good example of this unethical behavior is the continued creation of money in the fiat system. The State is financed by the creation of money, while everyone who keeps their wealth in the inflated currency loses purchasing power.
bitcoin, a decentralized monetary protocol, prevents such enrichment, as no central authority can inflate the supply of bitcoins or control the network. This feature makes bitcoin an ethical money because it avoids the unethical practice of profiting at the expense of others.
Conclusion
Judaism adapts to modern circumstances, including changes in lending practices. However, the current approach lacks the ability to fully preserve its ethical essence, derived from the immorality associated with interest. This concern is shared by all monotheistic religions, including Christianity and Islam.
Sharing risks and rewards instead of paying interest was one of the first historic changes to the Jewish monetary system. The next revolution on the horizon, bitcoin, offers a tool to finally eliminate ethical concerns in lending. As disinflationary hard money, it removes the economic incentive to charge interest. Provide a monetary base for a universally ethical financial system. bitcoin is “kosher.”
I would like to thank Rabbi Shlomo Bistritzky for his comments on halachic issues.
This is a guest post by Leon Wankum. The opinions expressed are entirely their own and do not necessarily reflect those of btc Inc or bitcoin Magazine.
