THE ADVANTAGES AND CHALLENGES OF IMPLEMENTING SUKUK THROUGH BLOCKCHAIN TECHNOLOGY

Financial instruments must be able to adapt quickly in the 4.0 era. One of the Islamic financial innovations highlighted at this time is the application of blockchain technology-based sukuk. This study aims to determine specifically the advantages of applying sukuk through blockchain technology and to scale the point of view regarding the challenges faced in applying sukuk through blockchain technology. This research uses a qualitative approach. The data collection technique used is literature study by collecting data from previous studies in the form of documentation of articles, journals or books as well as publication data from other parties. The data analysis techniques used were data reduction, data presentation, and conclusion drawing. The results show that sukuk can get many benefits from blockchain technology. Although blockchain has its advantages, there are risks and challenges that need to be resolved. In responding to this challenge, it is necessary to have a harmonious synergy among all stakeholders, from Syari'ah scholars, academics, to regulators and industry.


Introduction
The Fourth Industrial Revolution, often known as Industry 4.0, is a technological shift that is altering the way things operate and interact in general. 1 The influence will be felt in the regulation and governance of all technology-enabled activities and transactions. Not only that, but technological innovation is fast transforming financial instruments, and integrating sukuk to blockchain is one of the areas being explored. 2 The goal of using blockchain to explore sukuk is to find a solution to the issues of sukuk structure. The following are some of the most significant obstacles to increased market acceptance. First, the sukuk issuing documentation procedure is slower and less efficient than that of conventional bonds, resulting in greater expenses. Second, the Sharia ulama's judgement is crucial for any sukuk structuring procedure, and including Sharia judgements raises the cost of the procedure, Third, there is no standardization like in the traditional bond market, which slows down the structuring process, raises expenses, and restricts market spread. Fourth, internationally acknowledged Sharia norms are required so that diverse sukuk organizations may approach Sharia conflicts in a consistent manner. Lastly, I'll mention Other difficulties include tax treatment that differs from those of traditional bonds, credit rating requirements, and asset concerns throughout the transaction period. 3 A number of parties are necessary in a traditional or conventional sukuk structure to facilitate appropriate asset transfer, preserve investor interests, and maintain compliance with relevant rules across all sukuk tenors. The following parties may be involved in the issuance of traditional sukuk: 1) Issuer, usually a special purpose vehicle (SPV), which issues sukuk and protects underlying assets for sukuk holders, 2) sukuk holders, who are sukuk owners, 3) Obligors, 2 Blossom Finance, "Invest in Changing Lives Good Return: Great Impact," last modified 2019, accessed April 6, 2021, https://blossomfinance.com/. 3 N Khan et al., "Tokenization of Sukuk: Ethereum Case Study," Global Finance Journal (2020), https://www.sciencedirect.com/science/article/pii/S1044028319303552. who require funding and are responsible for paying sukuk holders / investors, 4) Sharia advisors, who guarantee that the sukuk structure is Shari'ah compliant, 5) Regulators, such as capital market approval authorities, 6) Legal advisors who guarantee that the structure is legal, 7) Investment banks, both individually and collectively, who operate as the primary regulator, rating adviser, and major manager, who guarantees and administers bids and advises the obligor, 8) Facility agent, who oversees the operational parts of the sukuk depository. 4 (see Figure 1).

Figure 1 Process and Arrangement of Traditional Sukuk Issuance 5
Meanwhile, the process of issuing sukuk using blockchain technology is far more simplified and straightforward. 6  Thus, this article attempts to identify the advantages of implementing sukuk through blockchain technology and to scale the point of view regarding the challenges faced in the process of implementing sukuk through blockchain technology.

Sukuk
Sukuk, also known as sharia bonds, are long-term securities based on sharia principles that are issued by an issuer to sharia bond holders (sukuk) and require the issuer to pay income to the sharia bond

Blockchain Technology
Blockchain is peer-to-peer computer software that comprises a data base and operates as a global accounting ledger using a distributed system made up of "blocks" that are maintained by computer networks.
In a vast network of all users, a peer is connected from one computer to another, and this network follows an agreed-upon protocol that is validated without the need of a central authority or third-party intermediaries. 12 Transactions, transaction records, and a method for verifying and storing transactions are the three main components of the blockchain. As a result, blockchain is made up of transaction records in a database system that work together as a public ledger, with the majority of the parties involved in the system verifying the history of every transaction carried out and disseminated on it. The blockchain notes are not intended to be modified or erased. 13 Blockchain technology is frequently confused with digital currencies such as Bitcoin. In truth, blockchain is a distributed payment mechanism that is utilized in Bitcoin and other digital currency 11 Pemerintah Republik Indonesia, Undang-Undang Republik Indonesia Nomor.19 Tahun 2008Tentang Surat Berharga Syariah Negara, 2008 Darcy W. E. Allen, "Discovering and Developing the Blockchain Crypto-Economy," SSRN Electronic Journal (2017) transactions. It can also be used for other purposes. 14 From an Islamic legal standpoint, blockchain technology is permissible since it is a breakthrough online payment system that outperforms the banking industry's financial technology. This is not in opposition to Islam; in fact, Islam encourages the use of a future online payment system. 15

Research Methods
This research uses a qualitative approach. The data collection technique used is literature study, by collecting library documentation from articles, journals or books as well as publication data from other parties that are the source for assessing the problems in this article.
The data analysis techniques used in this article are data reduction, data presentation, and conclusion drawing. These three data analysis processes will later sharpen the essence of this article and eliminate data that is not related to the problem formulation of the article, so that it will become a discussion that answers the problem formulations that underlie this article.

SWOT Analysis on Blockchain Technology
Blockchain provides a number of advantages. Transparency: The blockchain's transaction records are all publicly available. 16 The way transactions are recorded and authenticated on the blockchain can also assist to protect the integrity of records. 17 Due to these benefits, blockchain has the potential to become a transparent innovation platform for e-commerce, particularly in the domains of finance, monetary, supply chain, stock on hand, financial books, and exchanges. 18 As a result of this transparency, blockchain may be used in a variety of industries, particularly finance, and its applicability is projected to expand. created and completed quickly. 20 The blockchain also provides for the recording and storage of data changes, as well as the tracking and auditing of data through files. 21 Another benefit of Blockchain is that it is a decentralized and peer-to-peer network. In this situation, the benefits of a decentralized and peer-to-peer network, such as distributed processing and distributed security, ensure that the blockchain is highly efficient, particularly for private and consortium kinds. Furthermore, because all transactions that are saved and mirrored across the blockchain system can be tracked, blockchain is effective in reducing the danger of crime. As a result, harmful behavior like financial fraud can be reduced, lowering risk across the system. 22 Not only that, but blockchain can ensure that all sensitive data or data is kept private. Data hashing, strong and irreversible encryption, and the creation of private and public keys are all used to accomplish this. 23 As in cryptocurrencies, transactions that occur in cryptocurrencies are very secure with strong cryptographic functions. The transaction is protected by a secret signature, known as cryptography, which prevents forgery and duplicate issuance. 24    Another problem is that users may lose all of their data if their ID is lost. What happens if a user forgets his personal login data needed to obtain access to his own account? This is a concern that continues to be asked about blockchain technology. In this event, the user's account will be permanently deleted, together with all of the user's settings, information, and assets. 31 Furthermore, when a private key is hacked or stolen, there is no universal remedy. 32 Therefore, it is still urgently needed to develop future innovations for this blockchain technology.
Regardless of its strengths and drawbacks, blockchain technology offers both opportunities and threats. For example, improving system security is one of the opportunities. Blockchain is naturally more safe than many other storage systems since it is built on encryption. Furthermore, this data is dispersed, and no one has complete control over the database. Data can't be erased at random, and it won't be accessible to anybody who isn't allowed to see it. 33  Another advantage of using Blockchain technology is that it allows you to raise money from a big number of people via software.  When it comes to threats, blockchain is also vulnerable to environmental regulations, since the prospect of global warming has prompted a renewed focus on ecologically beneficial conduct. Large blockchain networks require a lot of power, which is highly expensive.
The bitcoin network currently consumes more energy than the majority of countries on the planet. The energy load will be considered more than ever as the use of blockchain grows. There may be a lot of pushback to The second sukuk is structured as sukuk al-istisnaʿ wa al-ijarah or asset-based rental sukuk. However, even though the technology is ready, no funds have yet been mobilized for the sukuk. Blossom Finance is said to be evaluating candidates for a second sukuk issuer, which will be used to fund projects such as the construction of hospitals.
Upon completion, the hospital and its facilities will be rented out and the profits will be distributed to investors. 47 In general, blockchain technology offers several advantages, including being more transparent, indestructible, decentralized, resilient, irreversible, efficient, and lowering transaction costs, thanks to its digital ledger. All of these benefits can make transactions more convenient and so contribute to Maslahah's welfare. Furthermore, the digital ledger in the "smart contract" is meant to defend against fraud, which is one of the Maqasid's five pillars. Al-sharia (the goal of sharia), which is to defend Al-Mal (property). 48

Advantages of Implementing Sukuk through Blockchain Technology
The advantage of implementing sukuk on blockchain is the Another advantage is the comparatively low cost of developing a blockchain system and its long-term applicability, which allows transactions to be made not only faster but also cheaper. Furthermore, system availability among network members is guaranteed 24 hours a day, seven days a week, ensuring seamless and simple synchronization in its architecture. Finally, the system's transactions are visible, traceable, and auditable. This enables a single record presentation to have a seamless influence on the audit process, allowing regulators to more easily watch and interfere only when necessary. It can also make 50 Jonathan Chiu and Thorsten V. Koeppl, "Blockchain-Based Settlement for Asset Trading," Review of Financial Studies 32, no. 5 (2019): 1716-1753. 51 Jibrel, "Sukuk Bonds on the Blockchain.," Medium.Com, last modified 2019, accessed May 24, 2021, https://medium.com/jibrel-network/sukuk-bonds-onthe-blockchain-9b5bf02778d0. underlying assets and cash flows more transparent. 52 Blockchain can increase investor confidence in decision making, given the amount of information provided and transparency.
Furthermore, when sukuk is issued using blockchain technology, the letters provided to sukuk holders or investors are distributed as tokens (crypto) that represent a piece of or ownership in the underlying asset, as well as dividend payments or profit sharing.
Due diligence and KYC verification can be identified using blockchain technology, sukuk ratings based on issuers can be done using an automated market value technique, and asset evaluations can be done using an automated market valuation approach, Sharia compliance and assessment can be reviewed automatically based on AI and legal provisions and dividend allocation (payments) can be made through smart contracts. 53

Regulatory challenges
Capital market products cannot be released without the consent of regulatory authorities. The securities commission of each nation is the sukuk market's regulatory authority, particularly the capital market's regulator. One of the key reasons that regulators must oversee capital markets is to guarantee that investors are protected and that market activity is controlled in a fair and ethical way.
One of the peculiarities of the sukuk blockchain is that it is part of a decentralized issuance process, which raises regulatory concerns. It   54 The important point to remember is that the sukuk blockchain may also fail, and there is still a danger of default. As a result, the regulatory authority is critical to the success of this sukuk blockchain initiative.

Shariʾah challenges
A qualified Shariah adviser or Sharia committee is necessary to support a structure that conforms with applicable Sharia requirements, as is necessary in other Islamic financial instruments, to guarantee that the sukuk is a Shariah compliant product. 55 Considering Shari'ah adherence to its structure is highly crucial for the validity of all sukuk, the same standards must be observed when sukuk are built on blockchain technology.
Unlike traditional bonds simply requires a single blockchainbased structure for all issuances, independent of the issuance reason.
The debtor and creditor have the same relationship as the issuer and bondholder. As a result, the structure will be consistent across all sorts of publication. However, in the sukuk structure depending on the type of underlying sharia contract, the steps involved must be different for each type of contract and their variations. 56  Sharia committee must be present at every stage of sukuk issuance, including blockchain-based sukuk. 57 As a result, unlike blockchain bonds, the sukuk blockchain still requires Shari'ah committee approval.
This indicates that financial expenditures in sharia advising services cannot be avoided in blockchain-based sukuk since the lack of a sharia adviser introduces the danger of sharia non-compliance.
In addition, the issue of sharia regarding the use of cryptocurrency is still being debated and there are many differences of opinion. In Islamic finance, sharia compliance with digital currencies is an issue that has not been unanimously resolved among jurists or scholars. While most legal experts do not provide the legality or validity of digital currency, others also have the opposite viewpoint. 58

Conclusion
The Islamic capital market and sukuk have benefited from blockchain technology, which has enabled creative advances in financial intermediation. When combining modern technology with sukuk goods, however, caution must be used to avoid legal, regulatory, and sharia problems, among other dangers. In the previous section of this article, we discussed how blockchain technology might improve sukuk. Despite the benefits of blockchain, there are dangers and issues with blockchainbased sukuk that must be addressed. In this case, harmonic linkages must be developed among all parties, from Shari'ah scholars and academics to regulators and industry, in order to produce Islamic financial products and assure their long-term relevance.