DIGITAL technology is changing rapidly and some aspects are causing concern among many Islamic scholars all over the world. One example is the cryptocurrency phenomenon.
Dealings in cryptocurrency, whether in developing, mining, funding or investing, are considered non-permissible by some jurists.
For instance, Egypt’s Grand Mufti recently issued a fatwa (edict) declaring bitcoin, the best-known cryptocurrency, as forbidden by Islam. Turkey’s Directorate of Religious Affairs has taken a similar stand.
We can come to terms with why and how such rulings are important as a precaution against unexpected outcomes.
The fatwa on the non-permissibility of cryptocurrency dealings is mainly due to concerns over elements of uncertainty (gharar), excessive risks (khatar), tendency towards potential losses, and claims of the disadvantages of decentralised currency and payment system.
Also, the monetary authorities of many countries regulate cryptocurrencies because of its association with money laundering and terrorist funding.
Naturally, technologists are not happy with such rulings. They cannot fathom the reasons behind the non-permissibility and they doubt that such decisions were made in full knowledge of the essential components of cryptocurrency: blockchain technology and cryptography.
Indeed, it is challenging for Islamic scholars and jurists to comprehend technology in-depth. Most people have yet to grasp the full extent of what blockchain is all about because it is new and fast-growing.
Blockchain is a continuously growing list of records that are linked and secured using cryptography, resistant to modification, decentralised and distributed efficiently.
Transaction records are managed by a peer-to-peer network collectively adhering to a protocol for validating alteration that requires collusion of the network.
In a blockchain system, values such as trust, intelligence, autonomy and mutual understanding are encrypted by using protocols and mathematical models.
The decentralised application of global networks has proven to reduce costs, remove points of failure, and prevent double spending. At the same time, it improves transparency.
At present, blockchain is a digital platform used for Internet of Things (IoT), mobile applications, cloud computing, distributed governance and online voting.
Since blockchain is reliable in transforming trust and values into technology, it will definitely be beneficial for other purposes such as in cybersecurity protocol, supply chain management, networking, insurance, cloud storage, charity and wakaf computerisation, healthcare, retail, real estate management and crowdfunding.
This technology has the ability to make organisations more transparent, democratic, decentralised, efficient and secure. With the innovation of the distributed ledger in blockchain, a digital asset is secured and entrusted.
In reality, there are no problems dealing with digital coins or digitalised fiat money in a bank account.
In fact, the digital value originates from fiat currency deposited into a digital wallet and converted to the blockchain of the digital coin (or cryptocurrency) and both are reversible. Therefore, both are financial assets and valuable.
From the philosophical perspective, money can be anything of value. The evolution of money demonstrates how money originates from any concurrent items in barter trading, commodity, gold and silver, fiat money and more recently, digital coins.
The significant characteristics of money are durability, portability, divisibility, ease of acceptability by the population, and that it is valuable.
Digital coins can be accepted as means of payment, store of value and units of account or even a measurement for a standard deferred payment. They can be considered as an economic utility, especially in current business and trade dealings.
Muslims should learn and adopt the blockchain technology by starting to give room for technology to develop.
Activities that signify counterfeiting, interest-based dealings, gambling or market speculation in digital coin exchanges, derivatives, stock market or forex are clearly unlawful.
It is fair for a central bank to regulate the circulation and supply of money in a country by enforcing guidelines to protect the country’s interests and address concerns over the excessive risks.
To avoid a conflicting syariah position among the related authorities, there must be collective research and discourse.
In this regard, Ikim will be conducting a roundtable discussion next month on the issue and will gather experts to present their views on cryptocurrency, with discussions on the syariah compatibility, compliance and governance. All are invited.
Mohd Noor Omar is a Fellow with Ikim’s Centre for the Study of Syariah, Law and Politics. The views expressed here are entirely the writer’s own.