Together Blockchain and cryptocurrency could bring numerous benefits for Sharia finance. Indeed, their recent collaboration is building potential new markets and opportunities.
Islamic financial institutions have started adopting Blockchain technology for complex financing terms, Sharia-compliant insurance, transactions and others.
Meanwhile, among Islamic Communities, there has been concern about whether digital currency would be considered as illegal under Sharia law. Islamic scholars have different perspectives on what is Sharia-compliant. Some schools deny cryptocurrencies, while some others have accepted it.
Recently, the Egyptian Grand Mufti has declared Bitcoin as haram on grounds of gambling and money laundering.
However, among those weighing on cryptocurrency is the Chairman of the Sharia Advisory Council, Datuk Dr Mohd Daud Bakar, who addressed the above concerns quite concisely on COIN.my and speared a ray of hope for crypto-fans.
He brought the main issues regarding Sharia and Crypto into the discussion, and we will look through these issues quickly so as not to drag this discussion longer than required.
His discussion mainly focused on 5 major issues.
- The issue with legal tender status.
Virtual currencies are not backed by the government and most of them are not treated as legal which makes many people think that it is haram and against Islam.
However, this does not mean that digital currencies could not be controlled by authorities, as the government is still accountable in ensuring the continuity of any form of financial activity that can be considered as a significant risk to the nation.
The recent declaration from the Securities Commission Malaysia (SC) on the framework for crypto-exchanges and digital assets answers this issue with Sharia.
- The issue with the need for intrinsic value.
Currency in Islam requires an intrinsic value to be recognised as legal in terms of Sharia. This is an argument that some scholars point out.
Looking from another perspective, there is no question that Dinar or any fiat currency has an intrinsic or underpinning value, not because they are currencies but due to their unique features.
However, in Sharia discussions regarding the fiqh (understanding) of currency whether in the past or present, there is no mention of the necessities of a specific currency that abides with the Sharia law to be underpinned by any assets.
- Issues with the crypto’s market price.
Due to the extreme volatility of cryptocurrency prices, people consider it as gharar (uncertainties), which is haram in Islam.
The value of crypto can fluctuate, Datuk Mohd Daud thinks that this is what caused some authorities to state crypto as haram, but people misunderstand the difference between uncertainty and risk.
In Sharia, the risk is part of everyday life. Buying share, homes, and even buying gold is risky. In fact, any fitrah (instinct, or original human nature) from Allah S.A.W (salla-llahu-alayhi-wa-sallam) has its risks. So these price fluctuations in the crypto market can’t be considered as gharar.
- Cryptocurrency can’t be regulated
Cryptos are considered as haram because of the perception that digital currencies can’t be monitored and will lead to illegal financial activities such as not abiding with the KYC policy, money laundering, funding terrorist organizations etc. Public thinks that these are true and will ultimately threaten the financial ecosystem.
But in reality, any transfer, exchange and transaction linked to digital currencies are done openly through a secured and open network, where tampering without consent is impossible. Here, controllers can take part in the monitoring process as they have access to every transaction.
- Cryptocurrency fraud schemes
It cannot be denied that in a contract when terms are not clear, it is possible that many will be involved in scams. Interestingly, this occurs generally in other transactions such as real estates, stocks etc.
The fear is only because of assumptions that are neither relevant nor applicable only to cryptocurrencies, as shown in many cases of how crypto exchanges are hacked, and cannot be used as an argument for restricting the usage of digital currencies.
But with the recent regulations and stringent policies, these scams can be controlled.
As a Sharia scholar and practitioner, he is being a part of the world’s biggest Blockchain summit series, World Blockchain Summit in Kuala Lumpur.
Datuk Dr Mohd Daud Bakar sits on the Sharia Advisory Boards of various national and international organizations including the Securities Commission of Malaysia, and Central Bank of Malaysia. He is also President and CEO of the International Institute of Islamic Finance, Inc., Malaysia.