Despite its relative youth, the crypto market has surged in popularity and value, almost rivaling the size of the entire global Islamic finance industry, and even outsizing it at times. Its phenomenal, and volatile, rise has been a subject of contention among Shariah scholars, but it has not really deterred Muslim crypto enthusiasts, as evident by the emergence of digital currencies targeted at the Halal-conscious segment.
As at 11.30 am in Kuala Lumpur, global cryptocurrency market capitalization stood at US$1.81 trillion, up 1.7% from the last 24 hours, according to tracker CoinGecko. On the 17th December 2021, it was about US$2.3 trillion, and about a month earlier on the 8th November, it was more than US$3 trillion. Statistics vary, but the Islamic finance industry is estimated to be worth some US$2–3 trillion last year.
Yea or nay?
The fickle crypto market has captured the imagination of the world, but the erratic nature of the sector has also shunned some Islamic scholars who deem such capriciousness and risky instruments as Haram.
“Shariah law has a strict set of regulations for the Halal financial sector that dictate how money can and cannot be made, spent and invested. These regulations state that when it comes to currency, transactions should have a physical form and a definite value — cryptocurrency does not meet either of these requirements,” explained Melbourne-based Islamic financier Hejaz Financial Services, noting that as a result of the lack of a physical form or definite value, cryptocurrencies thus carry an element of uncertainty, wagering and speculation. “In addition, the trading of cryptocurrencies often catalyzes practices that are outlawed under Shariah law, such as gambling or fraudulent activity.”
Hejaz’s comments were made last December, on the heels of Indonesia — the world’s most populous Muslim nation — outlawing the use of cryptocurrency as Haram, while maintaining the vagueness on what constitutes as use. This echoes an earlier 2018 ban by the Egyptian Grand Mufti on the trading in Bitcoin as forbidden in Islam.
At the same time, other prominent Muslim nations are warming up to the idea of cryptocurrencies, if they have not already. Malaysia — widely acknowledged as one of the world’s most advanced Islamic financial markets — took a ‘ground-breaking’ position: cryptocurrency is not Haram under Shariah law, paving the way for crypto Zakat payments and Halal investments among others.
The apex banks of Saudi Arabia and the UAE — Islamic finance titans — are jointly working on establishing their own digital currencies, concluding a years-long cryptocurrency project at the end of 2020.
Shariah advisory groups such as Bahrain’s Shariyah Review Bureau (SRB) and Amanie Advisors have also given their stamp of approval on several crypto projects, understanding that the crypto world is complex and nuanced, therefore unable to be merely dichotomized into Haram or Halal.
At an international level, global standard-setters – the Accounting and Auditing Organization for Islamic Financial Institutions and the Islamic Financial Services Board – have begun debating the Shariah compliance of cryptocurrencies, but no formal opinion has been issued yet.
At this point, it would perhaps be remiss of us not to point out that regulators and standard-setting bodies do distinguish cryptocurrencies based on their utility – currency or digital security – in weighing the Shariah implications of this asset class.
From HGT Coin and GoldX launched by Shariah compliant HelloGold a few years ago, the market for Halal digital tokens has taken off. In the last 12 months alone, we have seen the entry of Australia-based MRHB Network, which listed its $MRHB token on a third exchange last week; Saudi’s ZamZam, which counts veteran scholars such as Shaikh Dr Nidham Yaquby as members of its Shariah board; and IBF Net, which secured Shariah approval for its impact crypto last November.
Halal crypto exchanges have also made a showing. Bahrain was the first to license a Shariah compliant digital asset exchange, Rain (established in 2017), followed by CoinMENA, which was founded in 2019. CoinMENA in January secured a license in the EU, expanding its remit to beyond the Middle Eastern region.
And then there are NFTs, or non-fungible tokens, which seemed to have mushroomed this year. IBF Net, an Islamic blockchain fintech company, last month launched a platform to facilitate the creation of Shariah compliant NFTs; AqarChain launched an NFT marketplace and so did MRHB DeFi and Finanomy. Hong Kong-headquartered QuantDART, whose Shariah compliance is monitored by SRB, is planning a Halal NFT marketplace as well.
So, it looks like while the debate continues to rage on, so will the rise of cryptocurrencies in the Muslim realm.