Cryptocurrency is becoming an increasingly popular medium of exchange. However some argue it isn’t in compliance with Sharia law.
Secretary-General of the International Union of Muslim Scholars Dr Ali Al-Qaradaghi, says that an investment in crypto or digital currencies such as Bitcoin and its other counterparts is forbidden by Sharia law.
Crypto currency is a decentralised digital money designed to function as a medium of exchange through a computer network. It is not regulated by a government or a bank.
After an in-depth study on the topic, Qatar-based Dr. Al-Qaradaghi affirms that the investment in these coins is considered forbidden in Islam and one reason given was ‘tahreem al wassail’ (prohibition of means).
He argues that the means of money handling could potentially endanger ‘riba’ which means the exploitative gains made in trade or business under Islamic law.
Digital currencies, he explains, are forbidden due to two reasons. Digital money, in its nature, lacks the value element found in, for instance, gold and silver. He states that as contrasted with credits or banknotes, digital currencies are not regulated by governments, further reiterating its forbidden make-up.
Commenting on the topic, Dr Abdulazeem Abozaid an Associate Professor of Islamic Finance in Hamad Bin Khalifa University and an expert on Islamic finance, tells Doha News that cryptocurrencies “do not qualify yet as valid currencies because they do not fulfill the Shariah conditions or requirements for a valid currency.”
“Nor are they valid to be traded or invested in. This is in view of the high risk associated with their trading due to their high volatility, which makes the whole process akin to gambling,” he adds.
In one of his published works, “Does Shariah Recognize Cryptocurrencies as Valid Currencies?”, Dr Abozaid states that one of the challenges with digital currencies is “whether it can gain people’s trust, and this may not be feasible if it is not controlled and regulated by a trustworthy authority.”
While there is no consensus among the Islamic finance sector regarding the permissibility of the digital currency, Devesh Vijay, Digital and Innovation Advisor, says that “banks, Fintechs and Consumers have been riding the digital transformation wave for a few years. However with the COVID-19 pandemic accelerating the digital agenda, it is no longer a choice to make. It is imperative for survival,” the KPMG reported in their Qatar Banking Perspectives 2021 paper.
Future prospects for cryptocurrencies
Qatar Central Bank (QCB) Governor, Sheikh Abdulla Bin Saoud Al-Thani said, “cryptocurrencies are in general considered as speculative assets and the probability of its use for unwarranted transactions cannot be ruled out. The restrictions are imposed due to the inherent risks associated with cryptocurrencies since they pose significant challenges to the stability and integrity of the financial system. However, QCB is closely monitoring technological and regulatory cryptocurrency developments and will take appropriate decisions in due course.”
There has been several attempts at launching Sharia-compliant digital currencies such as ‘OneGram’ and ‘HelloGold’, “which are backed by physical assets (gold in this case) to make sure it is compliant with Sharia’s definition of money. Although, these Sharia compliant cryptocurrencies received the approvals from Sharia compliance advisory firms, there is still no consensus on what constitutes a Sharia compliant cryptocurrency,” the paper added.
“Until there is a definitive Islamic ruling from a recognized authoritative body(s) or institution(s), Islamic investors are left to choose between conflicting judgements by Muslim scholars, Sharia advisory firms, financial and monetary regulators.”