The bullish trend on the cryptocurrency market in 2017 and 2022 had a significant impact on the growth of the number of digital currencies and blockchain projects in general. Of course, new trends could not but affect the sphere of Islamic finance where disputes still continue about how possible the use of cryptocurrencies is from the point of view of Islam and Shariah. To understand whether crypto haram or halal, consider each principle of Islamic finance separately.
Islamic finance strictly prohibits transactions involving the accrual or payment of interest, as this is considered an unfair and exploitative action. Instead, profit and loss sharing mechanisms are used, where risk and reward are distributed among the participants of transactions. Cryptocurrency does not involve the payment or accrual of interest, since it works without traditional banking structures, which is quite consistent with the concept of a ban on interest accrual in Islamic finance.
Prohibition of non-obvious agreements (gharar)
Islamic finance prohibits any ambiguities in the exchange that can lead to deception and abuse. This implies that all persons involved in a financial transaction must be fully informed and know the conditions before engaging in interaction, as this is the basic principle of Islamic finance.
Volatility in the cryptocurrency market
The cryptocurrency market is characterized by a high degree of instability, where frequent price fluctuations make the purchase and sale of digital tokens and coins unpredictable in terms of profit or loss. However, cryptocurrencies themselves have nothing to do with this atmosphere of uncertainty. The volatile nature of the market is determined by the actions of speculators. And therefore, the concept of Islamic banking, which prohibits any uncertainty, is able to work clearly and openly with cryptocurrencies.
Ban on gambling (maysir)
When it comes to using cryptocurrencies, some view the high level of speculation as a form of gambling. Islamic finance strictly prohibits gambling and speculation, as these activities can be too risky and unpredictable. As a result, Islamic finance encourages investments based on tangible assets and economic activity.
Is cryptocurrency allowed in Islamic finance?
The debate about this has been going on for a very long time. Supporters of cryptocurrencies believe that this is a legitimate investment tool that can ensure economic growth and development. On the other hand, Islamic finance emphasizes the importance of social and ethical responsibility and encourages investment in projects that have a beneficial impact on society and the environment.
Cryptocurrencies: Social and Ethical Responsibility
Cryptocurrency by itself does not contribute to social or ethical responsibility, but it can be used to achieve such goals. In some cases, digital money has been used to finance social and environmental projects. Therefore, in the field of Islamic finance, cryptocurrency can comply with the principle of social and ethical responsibility if it is used for responsible purposes.
Financing secured by assets in Islamic finance
In Islamic finance, all financial transactions must be backed by tangible assets, which guarantees their validity and compliance with real economic activity. Cryptocurrency is not necessarily associated with any assets, but can be used in asset-backed financing schemes. For example, some companies issue digital currencies backed by gold or other tangible assets. Thus, cryptocurrency can correspond to the concept of asset-backed financing in Islamic finance if it is used in asset-backed transactions.
Is cryptocurrency compatible with Islamic finance?
Although the digital asset itself does not contradict the basic rules of Islamic finance, there are concerns about its unstable nature and lack of necessary regulation. If the digital currency is used in transparent transactions, in such a scenario it can correspond to the fundamentals of Islamic banking and become a viable alternative to traditional methods of monetary interaction.
Cryptocurrencies and Shariah law
Cryptocurrencies that comply with Shariah law are digital money created on the basis of Islamic financial principles, such as the prohibition of usury (riba) and risk (gharar). The HAQQ blockchain, created in accordance with the rules of Islamic finance, is a clear demonstration that the symbiosis of cryptocurrencies and Islamic banking is quite achievable. 10% of the coins created in the HAQQ network are sent to the Evergreen dao Foundation, a decentralized autonomous organization through which donations to Islamic charities take place. In addition, the HAQQ network actively discourages activities that may harm the community or contradict the ethics and values of Shariah, for example, gambling and casinos.
In order to comply with Shariah law, cryptocurrencies must not only meet modern technical requirements, but also comply with ethical and moral principles such as fairness, openness and accountability. This requires that tokens are not used for illegal or immoral activities such as money laundering. Shariah-compliant cryptocurrencies open up the world of decentralized financial products to the Muslim community, especially in countries such as Malaysia and Indonesia, where there is a high demand for financial products that comply with the norms of Islam. These digital assets can be used for everyday operations, for example, to purchase goods or services.
Islamic Coin is a digital currency conforming to the norms of Islam and Shariah, functioning in its own blockchain Haqq, which means “Truth”. Already at the stage of closed sales, IslamicCoin aroused huge investor interest and was able to raise more than $ 200 million in just a few weeks. Unlike technically outdated Bitcoin and Ethereum, which have a lot of problems, IslamicCoin uses the full power of the most progressive blockchain technologies and is based on the most fair and reliable ideology and rules of conduct.
Successful investors choose ideology, technology and prospects based on something more than minor fluctuations in price charts. For almost 20 years of the existence of a new type of digital money, cryptocurrencies have not brought a drop of real value into this world, have not made people free, independent and happy. And this means that it’s time for a new type of finance based on responsible choices and new values!
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