Bitcoin is kosher

introduction

Judaism is based on the construction of a code of ethical conduct taught in weekly meetings. Every Saturday morning, Jews gather together to read the weekly Torah (Old Testament) and learn about the principles of living according to Jewish ethics. One of these principles is the prohibition on collecting interest on loans. The prohibition is mentioned in the weekly Torah reading Ki Tzei.

Bitcoin = protocol and payment network.

Bitcoin = currency.

no interest

The interest ban, which is initially difficult for modern investors to understand, has its roots in the severe consequences of non-payment in pre-Biblical times, often leading to the enslavement and debt bondage of debtors and their families. This ban aimed to prevent such dire consequences. The question arises: Why is charging interest a standard practice in modern times?

Inflation and Default Risk

Interest generally serves to counteract the loss of purchasing power caused by currency inflation. Money supply is important. How much do you own in total? What happens if there are 1000 units of money in the economy, you have 100 units, and the government increases supply by 1000 units? Your money is worth half as much as before. To offset inflation, market participants use mechanisms such as interest rates.

Additionally, giving up money incurs opportunity costs. If you were to throw that money away today, the return you could earn on that money in the future should theoretically be positive, taking into account the risk of loss and the fact that you won’t be able to use that money for other investments.

Judaism and Credit

Jewish law prohibits the charging of interest but does not prohibit the exchange of money, including commerce or lending. In effect, the borrower is responsible for repaying the debt in full. Lending is viewed positively and is consistent with the Jewish spirit of caring for others. However, from an ethical perspective, opportunity cost should not play a role in demanding interest rates. Unfortunately, strict interest limits have led to a decline in lending, which has had a negative impact on the economy. A solution had to be found.

The name is Isca

Jewish scholars invented a clever workaround for charging interest: Heter Iska. Rather than one party providing a loan to the other, it is an agreement in which two parties become business partners. This type of business venture is called Pikadon.

In this venture, no interest is paid, but a complex partnership is formed in which a portion of the profits are shared with the lender. The logic is that since both parties are partners, they also share the risks of the business, so sharing profits is ethically justifiable and is not considered interest payments.

This is an interesting approach to creating modern guidelines that follow ancient Jewish law, but it may not fully address the heart of the matter: the ethical issues. After all, charging interest is prohibited. This applies not only to Judaism but also to all monotheistic religions. I suggest that this problem can be solved ethically through Bitcoin.

Bitcoin, inflation and ethics

Bitcoin is money that allows lenders to avoid having to charge interest to cover the loss of purchasing power. Bitcoin is disinflationary, meaning the rate of inflation (new supply) decreases over time. According to the protocol code, mining rewards will be halved approximately every four years until 2140, when the last portion of Bitcoin will be mined. After that, the inflation rate is zero. These rules are hard-coded into the protocol and cannot be changed arbitrarily. Bitcoin is designed to increase purchasing power over time, forever.

This represents a significant technological advancement. Unlike other elastic currencies, such as precious metals or fiat currencies, whose supply can expand with demand, Bitcoin’s supply is completely inelastic.

Bitcoin Standard Loan

In theory, under Bitcoin Standard, where Bitcoin is the primary unit of account, lenders of Bitcoin do not have to charge interest to offset inflation. This is because, in theory, Bitcoins lent by someone will gain purchasing power over time and gain purchasing power as well. Until the loan is repaid.

Repaying a loan denominated in Bitcoin can be difficult as long as the transaction is conducted in fiat currency such as dollars or euros. Converting Bitcoin to fiat for business transactions exposes your funds to monetary inflation, which contrasts with Bitcoin’s inherent appreciation due to its limited supply. For Bitcoin-based lending to work, a transition to the global Bitcoin standard is required. The world economy is far from that. However, the trend of accepting Bitcoin as a legitimate payment method continues, and there are numerous startups and financial institutions offering Bitcoin-based loans.

It remains to be seen which Bitcoin service providers will continue to be reliable 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 managers have submitted Bitcoin ETF applications for SEC review. These include BlackRock, Fidelity, Invesco, Franklin Templeton Investments, Wisdom Tree, VanEck, Global

Bitcoin is kosher

Bitcoin serves as a tool to overcome ethical barriers to lending according to Jewish principles. In this context, “kosher” refers to practices consistent with Jewish ethics beyond traditional food use. Bitcoin is kosher because it is a hard currency that suppresses inflation and eliminates the economic incentive to charge interest. It’s a concept so abhorrent that it’s become a religious law not to do so. Bitcoin has properties that serve as a monetary base layer for the financial system, consistent with Jewish ethics.

Bitcoin and Jewish Ethics

In Judaism, enriching oneself through others is considered unethical. A good example of this unethical behavior is the continued creation of money in fiat systems. Countries finance themselves through money creation, while everyone who holds wealth in an inflated currency loses purchasing power.

Bitcoin, a decentralized currency protocol, prevents this concentration because no central authority can inflate the Bitcoin supply or control the network. These characteristics make Bitcoin an ethical currency because it prevents unethical practices of profiting at the expense of others.

conclusion

Judaism adapts to modern circumstances, including changes in lending practices. However, current approaches lack the ability to fully preserve the ethical essence due to the immorality associated with profit. These concerns are shared by all monotheistic religions, including Christianity and Islam.

Sharing risk and reward instead of paying interest was one of the first historical changes to the Jewish monetary system. Bitcoin, the next coming revolution, provides the tools to finally eliminate ethical concerns about lending. It removes the economic incentive to charge interest as a hard currency, mitigating inflation. Provides a monetary foundation for a universally ethical financial system. Bitcoin is “kosher.”

I would like to thank Rabbi Shlomo Bistritzky for his feedback on halachic issues.

This is a guest post by Leon Wankum. The opinions expressed are solely personal and do not necessarily reflect the opinions of BTC Inc or Bitcoin Magazine.