Tools that meet the needs of Muslims can accelerate the crypto adoption in Islamic countries, but experts agree that it will take a long time. Despite the continuous developments in the world of decentralized cryptocurrencies and the entry of diverse populations into it, the current ecosystem lacks the necessary tools to serve the Muslim community better, according to an expert.
Mohammed Al-Kaff Al-Hashimi, co-founder of “Islamic Coin“, told Coin Telegraph that the Muslim community, which represents about 1.9 billion people worldwide, “suffers from a lack of services in the decentralized world.”
Al-Hashimi added that most blockchain networks lack Sharia principles, explaining that cryptocurrency projects developed with Sharia compliance still fail to gain good adoption and success due to the presence of prohibited activities, such as gambling and projects that impose interest.
You cannot invite [Muslims] to conduct their transactions within a specific environment if the mentioned ecosystem contains many projects that are not compatible with Islamic law, and this is what prompted us to develop a clean environment.
However, having a “clean environment” is not enough to achieve the desired adoption, especially in Islamic countries, as Al-Hashimi explained, where there is a significant gap in awareness, and the majority of Muslims still need education about blockchain technology and cryptocurrencies.
According to estimates from the cryptocurrency platform Triple A, cryptocurrencies are used by only 4.2% of the world’s population, or more than 420 million people in total. At the same time, according to BrokerChooser, Muslim-majority countries such as Nigeria, Pakistan, and Indonesia have already reached the top 10 ranks in terms of the number of cryptocurrency owners.
In addition to the lack of awareness and education, trust is also a key factor in adoption, as scams and frauds that have plagued the cryptocurrency space can widen the gap in the collective adoption process.
Al-Hashimi also believes that more decentralized applications (dapps) and smart contracts designed specifically for Muslims can help accelerate the adoption of cryptocurrencies within the community, saying:
They need a halal stablecoin, in addition to a halal exchange. That is, the entire ecosystem needs to be ready.
However, he noted that building these tools and “Muslim adoption of emerging technology and their transition to the decentralized world will take a long time.”
Different views of Islamic countries towards cryptocurrencies
The concept of new digital assets is still ambiguous in many Islamic states that govern their regulatory rules according to Sharia law.
In 2021, the Indonesian Council of Ulama, the highest authority of Muslim scholars in the country, declared all cryptocurrencies to be haram (forbidden), due to their speculative nature. In addition, the cryptocurrency space suffers from frequent fraud and bankruptcy, raising doubts about the validity of cryptocurrencies as an investment tool.
Saeed Al-Darmaki, the founder and CEO of Sheesha Finance, explained that Muslims “want to do things that are acceptable under Islamic law.” However, Al-Darmaki pointed out that there is no “clear” fatwa (Islamic ruling) regarding cryptocurrencies in general, as he said:
I think this will happen later, as I see that the cryptocurrency market is not big enough for that to happen now.
According to Mohamed El-Erian, the Chief Economic Advisor at Allianz, the adoption of cryptocurrencies in Islamic finance is a complicated issue that requires more time for evaluation. El-Erian also believes that it is “premature” to judge the validity of cryptocurrencies and Islamic finance in the cryptocurrency sector.
While some Islamic countries are still grappling with this new form of currency, many countries have more friendly positions towards these currencies. Commenting on some Islamic countries’ approach to cryptocurrencies, El-Erian said that the adoption process is driven more by people’s needs:
I think it depends on the country’s situation and whether cryptocurrencies serve people’s interests or not.” He added: Lebanon can be used as an example, where the banking system has completely failed, and therefore adopting cryptocurrencies may be a good option.
Last year, Lebanese banks closed their doors after refusing depositors’ requests to withdraw their frozen funds in the banking systems due to the financial collapse that occurred in the country, prompting some Lebanese to mine Bitcoin or store their wealth using cryptocurrencies to cover their expenses.
In a report released in October, the blockchain data platform Chainalysis found that Lebanon had the second-highest value of cryptocurrencies during the period from 2021 to 2022.
The highest value of cryptocurrencies during the period between 2021 and 2022 was recorded, and some Gulf countries, such as the United Arab Emirates and Bahrain, welcomed cryptocurrencies because they naturally promote innovation.
According to Al-Darmaki, “the United Arab Emirates is a special case, as the country always hosts emerging technologies and adopts them. The UAE government has been a continuous supporter of blockchain technology and is aware of the regulation related to cryptocurrency users.”
As for Bahrain, Al-Darmaki believes that the Kingdom follows a similar approach to its neighboring countries, which have already become major players in the financial industry in the region. He explained that taking advantage of the opportunity to explore and regulate cryptocurrencies at the central bank level “attracted interest in cryptocurrencies to Bahrain.”
While the crypto space has not yet matured to gain the desired collective adoption within the Muslim community, Al-Darmaki remains optimistic in this regard, as he stated that once the virtual asset sector grows further, “Islamic digital finance will grow with it.” He added:
I believe that in the future, there will be many use cases for Islamic finance, and it will become more popular in the cryptocurrency industry.