In the realm of modern finance, the collision between traditional religious values and emerging technologies has ignited an intriguing debate: when does cryptocurrency align with Islamic principles and when does it veer into forbidden territory? This article delves into the intriguing intersection of cryptocurrency and Islamic finance, exploring the criteria that determine whether a digital asset is considered halal (permissible) or haram (forbidden) under Shariah law.
The Basis of Islamic Finance
At the heart of Islamic finance lies the prohibition of interest, an antithesis to conventional banking practices. Shariah emphasizes ethical financial dealings and profit-sharing agreements that resonate with the principle of equity.
Financial transactions must remain transparent, ensuring all involved parties are fully informed. Furthermore, investments are directed toward ventures that contribute positively to society, eschewing harmful pursuits such as gambling and substances deemed detrimental.
The Role of Cryptocurrency
Cryptocurrencies have opened a new chapter in the financial world, their virtual nature redefining how value is perceived. Traditional intangible assets like stocks and bonds find an ally in Shariah law, provided they hold real utility and comply with ethical standards.
The complex digital realm, however, has prompted Islamic scholars to scrutinize whether these virtual currencies truly adhere to the principles of Islamic finance.
The Halal Framework
A Shariah-compliant cryptocurrency necessitates a harmonious blend of expertise from Islamic scholars, financial mavens, and tech virtuosos. This alliance crafts a digital coin rooted in the principles of profit and loss-sharing, diverging from interest-based lending.
The essence of this design fosters an equitable distribution of profits and losses, steering clear of fixed returns.
Certification and Supervision
Before a cryptocurrency gains the esteemed halal status, a vigilant Shariah supervisory board undertakes a comprehensive evaluation of the coin’s blueprint. This assessment scrutinizes the features and design of the cryptocurrency, ensuring adherence to Shariah principles.
A remarkable example is Islamic Coin (ISLM), which emerged as a halal digital asset on the Haqq Network blockchain, earning the endorsement of a Fatwa. The token follows a deflationary model to prevent the creation of new coins on a whim. Then, whenever a new coin is minted on its network, 10% of its proceeds are directed to Evergreen DAO for charity purposes.
Navigating Uncertainty and Risk
Cryptocurrencies’ speculative nature has invoked the concept of “gharar” – uncertainty or risk – a term fundamental to the evaluation of their compatibility with Shariah. While speculation is discouraged, a well-intentioned and utility-driven approach garners acceptance.
The co-founder of Islamic Coin, Mohammed AlKaff AlHashmi, affirms that Shariah law demonstrates adaptability to evolving technological paradigms.
Stablecoins and Shariah Compliance
Stablecoins, aligned with the principle of asset-based financing, provide a compelling case for Shariah compliance. Their intrinsic connection to real-world asset reserves resonates with the essence of Islamic finance.
Among these is OneGram, buttressed by tangible gold reserves. As a commodity-based token, it exemplifies the potential harmonization between digital currencies and the tenets of Shariah law.
Expanding Financial Inclusion
The convergence of Shariah-compliant cryptocurrencies and Islamic finance transcends mere financial innovation. These digital assets offer a gateway to financial services for adherents in countries where Islam predominates.
By appeasing the concerns of religious investors and aligning with ethical principles, cryptocurrencies may foster enhanced economic participation and investment in Islamic banking, stimulating overall economic growth and financial inclusion.
The dynamic fusion of cryptocurrency and Islamic finance charts an uncharted course in the financial landscape. The discourse surrounding the halal or haram status of digital assets navigates intricate theological nuances and modern economic paradigms
As technology continues to unfurl, the evolution of Shariah-compliant cryptocurrencies beckons forth a transformational era where innovation and tradition walk hand in hand, shaping the contours of financial ethics and accessibility.
Giancarlo is an economist by profession with a career spanning nearly two decades. His professional journey has seen him assume vital roles in various government and private organizations such as the Department of the Interior and Local Government (DILG), the National Economic and Development Authority (NEDA), Megaworld Corporation, and the China Banking Corporation in the Republic of the Philippines.
In addition to his civic and corporate pursuits, his forward-thinking approach has led him to manage several prominent websites in the banking and finance sector, notably the Australia-based RateChoice, where he immersed himself in the world of emerging financial technologies and where he found particular interest in Bitcoin all the way back to 2013.
Prior to his addition to Blockzeit’s dynamic team, he held an essential role as Project Manager for initiatives encompassing blockchain, stablecoin, mining, special economic zone development, and iGaming. This noteworthy chapter in his career unfolded under the auspices of InPlan Consultancy Services, Inc., the think-tank of IMPERO Consortium Management Corporation headquartered in Manila, Philippines, and Tokyo, Japan. InPlan, led by a distinguished retired Cabinet member of the Philippines, collaborates directly with IMPERO’s core management team, contributing to strategic planning and business development endeavors.