UPDATED: Official announcement here.
Cryptocurrency is a global phenomenon and although the technology has garnered a lot of “fans”, it has also received a lot of criticisms because of its volatility and speculative nature.
We hear a lot from crypto critics in the financial realm with arguments about the financial side of the technology. However, as cryptocurrencies gained popularity over the years, people found another point of argument: religious compliancy in Islam.
With over 1.8 billion (as of 2015) Muslims in the world, the argument as to whether cryptocurrency is permissible or not is a huge issue.
Cryptocurrency in the Middle East and Asia
The Gulf and Southeast Asia are considered as the main centers of Islamic finance and cryptocurrency and blockchain tech is very much prominent in the areas. In fact, Dubai plans to have the world’s first blockchain powered government by 2020. The country is also hosting a forum on April 16 to 17 where they will be discussing initial coin offerings (ICOs) among other related topics.
What’s the Issue?
Well, according to Islamic law principles:
economic activity must be based on physical assets and not on hype and speculation.
So does that make bitcoin haram? It depends on how you use or define it. In an interview with Cointelegraph in January, Matthew J. Martin of Blossom Finance, a FinTech startup in Indonesia, said:
“As a payment network, bitcoin is halal.”
As a currency, bitcoin may not be halal. However, this does not mean all cryptocurrencies are.
Financial Sector Compliance
According to Aljazeera, only 20% to 30% of banks in the Gulf and Southeast Asia follow Islamic principles. In conventional finance, private ledgers and the fractional reserve principle are used and they are prohibited in Islam. However, most Muslims use conventional bank networks if it is more convenient or profitable than non-conventional methods regardless of compliance.
In comparison to conventional finance, bitcoin is actually better and more compliant to the Islamic principles as the technology features a public ledger where asset ownership can be verified.
Negativity and Bad Press
Despite this, the issue of whether bitcoin and cryptocurrencies are halal may still influence the adoption of the technology. The Merkle has reported that two imams were sacked for their involvement in crypto.
Big names in the religious community have spoken against bitcoin and cryptocurrency calling the tech “forbidden” and susceptible to misuse in malicious activities. Even the central banks in Saudi Arabia and the UAE have warned citizens against crypto trading.
But much to the relief of Muslim bitcoin enthusiasts, no bans have been put into place.
Compromise with Gold
Apparently, to make crypto halal, it just needs to be backed by gold or other permissible things.
In an attempt to get around Islamic principles, OneGram, a startup in Dubai, started issuing cryptocurrency backed by gold. As the name suggests, one crypto unit is backed by one gram of gold.
In Malaysia, HelloGold is another startup issuing gold-backed crypto and it has received approval from Islamic scholars.
Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) Sharia Conference
The annual Sharia conference of the AAOIFI was held in Bahrain on April 8 and 9. In the conference, Islamic finance scholars discussed whether ‘cryptocurrency’ belongs to Ribawi items.
Finance Encyclopedia defines Ribawi items as:
The six substances (items) that are sold by weight and measure, literally: gold, silver, dates, wheat, salt, and barley. Exchanging these in kind must be in equal measure and with immediate transfer of possession.
A positive outcome would mean that bitcoin and cryptocurrency may be considered halal as ‘money’.
No official reports have come out with the outcome of the said conference as of yet.