Shariah Outlook on Crypto

Currencies
Mufti Barkatulla, Islamic Finance Shariah Scholar, London
At a recent workshop of Islamic Finance practitioners and Crypto/digital Currency
developments organized by a newly formed body, the Islamic Finance and Crypto
Currency, IFCC, leadership summit in London, participants spoke their mind about the
topic. As an Islamic Finance Shariah Scholar I expressed my feelings.
Firstly, as is the case with media, regulators, bankers, and financial institutions, current
vocabulary fails to properly express an emerging phenomenon of Blockchain technology
and digital/virtual/crypto currencies. Attitudes vary between high hopes and sceptics.
Shariah opinions are no exceptions. Cursory Fatwas, or Shariah opinions from Malaysia
and Qatar are sceptics. Some declare it outright impermissible, due to its intangibility,
volatility, and non-convertibility into goods or services. No shortage of Shariah opinion on
internet.
Many are comfortable to treat it at par with fiat currency notes and coins. Those are
Islamweb.net (fatwa # 251170, 231460 and 11074) and Dr Munzir Kahf of Qatar Faculty
of Islamic Studies. Some enthusiasts declare it most akin to be compatible with
principles of Islamic Shariah law and more suitable to Islamic modes of finance such as
Blossom Finance, a microfinance firm based in Indonesia. Matthew J. Martin is the founder
of the entity.
History of money was traced before advent of Islam and during the last millennial of
Islamic Civilization. Roman and Byzantine gold, silver and copper coinage were common
in pre-Islamic Arabia. During 40 years of Caliphs and early 30 years of Ummayad period
these foreign coinage remain in circulation. It was during Hijra years 70s (CE 690s)
onward that Islamic coinage came into circulation. For the best early part of Islamic
civilization, means of payment remain neutral to the system of Islamic moral guidance
into the realm of money. Consequently, it is safe to assert that Islamic Shariah Law is
more concerned with morality of financial transactions rather than its form or modus
operand. Any money or currency is neither halal permissible - nor haram impermissible. Guidance is about its value which it represents. If money is transacted in
a lawful manner then it is halal. Values or rights of people represented by a real/virtual
currency or coin should not be violated or undermined. Exchange and transfer of values
with justice and through legitimate means is concern of Shariah, not the form or shape of
the medium.
Basic Shariah requirement for a means of payment for goods and services to be
recognized as an acceptable tender of settlement is that it should be acceptable to
substantial number of counterparties in a given demography or community. As such
crypto currencies vary to qualify that status. Henceforth, conflicting view among
regulators, merchants, and Shariah Scholars alike.
Among Islamic activists, there are the metallist school, which see money as a
commodity, a thing with its own inherent value - which governments should leave alone
as much as possible. They are represented by Gold Dinar promoter in far and middle
east. By contrast for, chartalist school money is a complex system of credit

relationships, which allows value to flow within a society. For these people currency is just
the token around which the monetary system is arranged. Governments have a role to
play in managing this system and thus the economy.
Classic Islamic Jurists contemplated that: Anything that is generally accepted by the
public can fulfil the role of money. Thus money is, primarily, a medium of exchange and
not a commodity. The price of this money (interest) must be zero.
I argued that a Bitcoin-style crypto currency may constitute an effective instrument for
the further development of Islamic Finance. Islamic Finance imposes different
requirements compared to conventional financial policies on a monetary instrument
concerning its use as a tool for achieving social and economic justice. Most imminent
Shariah Scholars are keeping their mind and heart open and maintain a close observation
on developments in crypto currency world along with blockchain implementations.
It is earnestly urged to engage those scholars as a stack holder and sponsor
research papers from Shariah perspective to develop and consensus of solid
opinion, instead of cursory burst of fatwa and remarks.
The crypto currency market is still in its infancy and as a whole remain a niche product. A
2015 report entitled (Money is no object) by PriceWaterhouseCoopers on crypto currency
concludes:
Clearly, there are challenges for crypto currency in the near term. With so many
of its characteristics falling between a currency, a financial asset, and a
technology protocol, the pace of growth and adoption may splinter the industry.
As a disruptive technology, it will continue to divide opinion and face scepticism
As regulatory standards are adopted and refined, creative products enter the market, and
the prices of the various crypto currencies stabilise, well see greater confidence on the
part of all market participants in including Islamic Finance practitioners, promoters and
Shariah Scholars who are the gate keepers of industry.
Professor Charles W Evans in his recent research (published in Journal of Islamic Banking
and Finance) concludes that Bitcoin or a similar system might be a more appropriate
medium of exchange in Islamic Banking and Finance than riba-backed central bank fiat
currency, especially among the unbanked and in small-scale cross-border trade.
As an optimist onlooker, I am delighted to note Professor Evans assertion that:

A group of Islamic Banks could organize a virtual currency exchange under the principal of
musharakah, in order enable those banks' customers to buy and sell crypto currency
efficiently, in order to transfer value amongst themselves and to bypass the inefficiencies
of the status quo banking system. If this exchange maintained a very narrow bid/ask
spread and charged no other fees, and restricted access to customers of the member
banks, this could create an incentive for Muslims and non-Muslims alike to bank with
member banks.

I wholeheartedly support all such endeavours to advance the scope and reach of new
phenomenon, such as virtual/crypto currencies based on blockchain in the next phase of
new bread of innovative Islamic banks.
(Disclaimer: this is personal opinion of Mufti Abdul Kadir Barkatulla. It neither
seeks to endorse a particular crypto currency product nor declares its Shariah
compatibility or otherwise.)