Central Bank Digital Currencies, Internet of Things, and Islamic Finance: Blockchain Prospects and Challenges

This paper introduces the need for blockchain technology integration for Islamic financial institutions. The article presents three main applications of blockchain technology. It explains how such technology can be used in the banking and financial sectors by providing examples for each application. Given its relevancy, the paper expands on Central Bank Digital Currencies (CBDCs) as one of the blockchain applications. The article then discusses salient points on how the banking sector would be affected by what is described as the future of money. Subsequently, an analysis of the use of blockchain in financial services and, in particular, the benefit of Islamic financial services is provided by examining examples of past successful implementations. The paper then introduces the Internet of Things (IoT) and illustrates the possible technology implementation in financial institutions. The inherent security weakness of IoT is summarized by the potential elimination of that weakness if combined with blockchain (BIoT). The paper concludes by providing a handful of suggestions and recommendations on the urgency of considering CBDCs for future daily operations, integrating Distributed Ledger technology, and using BIoT to safeguard the financial and clients' transaction records.