DC222 SESSION 2022/2023

GMUP5014 LEGAL RESEARCH METHODOLOGY

___________________________________________________________________

Title: Effectiveness of existing Malaysia laws on cater illegal cryptocurrency trading

platform ( Literature Review ) (10%)

___________________________________________________________________

WONG SHI WEI 828765

LECTURER: DR. MD. ZAHURUL HAQ

DUE DATE OF SUBMISSION: 11 Mar 2023

Table of Contents
8.0 Literature Review.................................................................................................................3

8.1 History of cryptocurrency............................................................................................................3

8.2 Benefits of cryptocurrency..........................................................................................................5
8.3 Disadvantage of Cryptocurrency................................................................................................10
8.4 Statutory definition of Cryptocurrency......................................................................................13
8.5 Legal Framework of Malaysia on Cryptocurrency......................................................................14
8.6 Legal issue at cryptocurrency....................................................................................................16
8.7 The Legality of Cryptocurrencies Under Shariah........................................................................19
8.8 Islamic Financial Technology and Regulation Challenges...........................................................22
8.9 Currency that not illegal but also not legal tender....................................................................23
9.0 Bibliography.......................................................................................................................25
8.0 Literature Review
The rise of cryptocurrencies has attracted considerable attention from scholars and
policymakers alike. There has been a growing body of literature examining the legal,
economic, and societal implications of cryptocurrency adoption. Besides that, also will seeks
to examine some of the key findings and themes emerging from previous studies on the
regulation of illegal cryptocurrency trading platforms in Malaysia1.
The necessity for comprehensive cryptocurrency market regulation is one of the major
themes that emerges from the literature in order to reduce the hazards brought on by unlawful
actions including aiding terrorist financing, money laundering, and fraud. Because the
cryptocurrency market is unregulated, criminals now have a place to move money
anonymously, making it challenging for law enforcement to uncover and stop unlawful
activity.
In Malaysia, the government has implemented various laws and regulations to
regulate the cryptocurrency market, including the Capital Markets and Services Act 2007 and
the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities
Act 2001. However, there are limitations and loopholes in these laws that allow illegal
cryptocurrency trading platforms to continue to operate in the country.
To better identify and look into unlawful actions in the bitcoin sector, regulatory
organisations and law enforcement departments must work together more closely. Some
scholars argue that the use of blockchain analysis tools and the sharing of intelligence
between agencies can help identify and track down criminals who use cryptocurrency for
illegal purposes.
Moreover, there is a need for the introduction of new laws and regulations that cater
specifically to illegal cryptocurrency trading platforms. This may involve amending existing
laws and regulations or introducing new ones to address the limitations and loopholes in the
current legal framework.
Lastly, In Malaysia, the Shariah view on cryptocurrencies is that they should only be
used within the regulatory framework, and any illegal activities associated with them should
be eliminated.

8.1 History of cryptocurrency

A definite definition of cryptocurrency is still lacking. A study found that a
cryptocurrencies is a digital money that is used to transfer the money or other types of
financial instruments in return for exchangeable money2. According to a different study,
cryptocurrencies are not under the substantial regulatory supervision of any financial sector
or other banking organizations. Instead, a public transaction record is used3. This ledger,
which is not under the control of any one organization or group, keeps track of every
1
"Trading platforms." Financial Regulation and Technology, 2022. doi:10.4337/9781802205411.00018.
2
Scharfman, Jason. "Investor Due Diligence on Cryptocurrency and Digital Asset Investments." Cryptocurrency
Compliance and Operations, 2021, 187-203. doi:10.1007/978-3-030-88000-2_10.
3
"Concentration in the financial system has risen." 2010. doi:10.1787/eco_outlook-v2010-1-graph32-en.
purchase, transaction, etc. This ledger utilizes blockchain technology as a public data
structure for the transmission of the transferred money. The ledger uses simple accounting
methods to keep track of transmitting data and information obtained through cryptocurrency.
There is a better level of confidentiality because of the single transaction mode of the ledger
and the single permission of the transactions. The foundation of bitcoin was built on this
strange historical process.
Other than that, a scholar research also talked about how the first cryptocurrency,
which also name as ECash. It was developed by an American in the early 1980s and the
developer name is David Chaum. ECash is recognised as the forerunner of digital ledger
trade even if it never experienced a considerable number of transactions. After creating
ECash in 1984, Chaum further created a payment mechanism that was virtually invisible to
the banking sector or governmental bodies. The industry saw the emergence of several other
upgraded bitcoin financial forms throughout the course of the following five years.
Information on cryptocurrencies was published in an MIT (Massachusetts Institute of
Technology) email group a few years later. Several faculty members and students at the
institution expressed interest in this listing. Numerous MIT faculty members and students are
said to have created novel and distinctive little forms of cryptocurrency. Unknown is the
extent of the MIT influence, although many of the current top cryptocurrencies which
continue to be used today are said to have grown from it.
The most important feature of cryptocurrencies, especially Bitcoin, is that they're
unable to be managed by any device or authority, are absolutely safe, or that the probability
of humanity being wiped off the face of the Earth is higher than the probability that a
transaction or customer on this platform would be brought to light. As a researcher
mentioned, The transactions that are recorded in the journals are completely secret, and there
is no oversight or regulating body for cryptocurrencies. As no individual information is
requested during the enrolling process, this privacy is achievable. As was already explained,
the blockchain ledger preserves confidentiality. A virtual wallet may be set up in a few easy
steps. After a blockchain wallet is found, the required email and password must be entered. A
few other informational components must be given, but they all need to be brief and
anonymous. Start routing number transfers of money from a bank account to begin buying
bitcoins with the virtual wallet. Increase the digital wallet's protection by adding additional
codes and passwords for trading safety. Customer can transfer or receive bitcoin by
submitting a code with another user, at which point the transaction can begin.
That the very first cryptocurrencies to receive considerable notice was Bitcoin. The
inventor who goes by the pseudonym Satoshi Nakamoto is thought to be from Japan. After
that, Nakamoto created the website bitcoin.org, where he continued to collaborate with other
developers on the development platform up until about mid-2010. Up until this point,
Nakamoto had been successful in using his platform to have a big impact on the
cryptocurrency market. Since then, Gavin Anderson, a well-known figure and the company's
spokesperson, has taken his position. Bitcoin, the first independent cryptocurrency, developed
multiple standards for digital cash.
 According to Andolfatto, the highest price of Bitcoin, which was reached on
December 17, 2017, was 19,783.00 USD as of about January 2019. One Bitcoin originally
cost $327.00 USD. Bitcoin was the first cryptocurrency with consistent and dependable
investment potential4. Since then, several cryptocurrencies have been developed, including
Litecoin, Ethereum, Ripple, and countless more. Most of them have actually been listed on
the cryptocurrency market Cryptocurrencies. Nowadays, some have even come to be
supported by other goods, such as bananas, gold, and other valuable metals. Cryptocurrencies
have not been around for very long, but many media organizations are just now learning
about them. According to a researcher, the first cryptographic protocol publication, Ledger,
was just established in 2016—a typical example of how academics take their time to respond
to practitioner developments.5. People are now starting to understand the importance of
cryptocurrencies as a number of other traditional media outlets, such as news media and
newspaper networks, progressively start to place more emphasis on it. Bitcoin is now widely
mentioned in financial contexts despite its lengthy history of speculation and current
developments. The volatile cryptocurrency market highlights the necessity for continuing
research and knowledge development by drawing attention to the advantages and risks that
draw investors.

8.2 Benefits of cryptocurrency

Several investors and professionals are highly sceptical about cryptocurrencies given
their background information and history. Despite all the skepticism, there are several
advantages to cryptocurrencies that should be considered. The anonymity that bitcoin permits
is one of its many benefits. According to a researcher, the network has no central controlling
entity, it is open to all members, and every machine that mines bitcoins is a part of it 6. Simply
said, there isn't enough control and regulation over cryptocurrencies. Personal freedom of
acquisition results from the absence of regulation, which allows the illogical need for the
bitcoin owner to justify the transactions to authorities 7. Decentralization allows for the
possibility of private transactions without the transmission of any personal information.
Contrary to appearances, covert transactions have many more legitimate purposes than only
illegal ones.
As a researcher stated, hackers and con artists employ algorithms that keep track of
the repeated purchases or searches for particular things. Criminals can utilize customer
information to trick people into purchasing services which will not going to provided or
going to steal additional personal information by using data connected to a credit card.
Computer cookies have been linked to some of these repeated transactions and frauds. Also,
4
Chowdhury, Niaz. "Bitcoin: World’s First Cryptocurrency." Inside Blockchain, Bitcoin, and Cryptocurrencies,
2019, 61-89. doi:10.1201/9780429325533-4. A
5
Abramowicz, Michael. "Autonocoin: A Proof-of-Belief Cryptocurrency." Ledger 1 (2016), 119-133.
doi:10.5195/ledger.2016.37.
6
Joshi, Jaykrishna, and R. P. Sharma. "Network-centric Empirical Analysis of Bitcoins cryptocurrency
organization." 2022 Third International Conference on Intelligent Computing Instrumentation and Control
Technologies (ICICICT), 2022. doi:10.1109/icicict54557.2022.9917885.
7
Dwyer, Gerald P. "Regulation of cryptocurrencies." Understanding cryptocurrency fraud, 2021, 199-214.
doi:10.1515/9783110718485-016.
when customers check the "I agree to all these conditions" or similar boxes, certain particular
firms may sell your information. There is a need for purchase privacy due to these covert
methods of obtaining personal information. Each transaction involving cryptocurrency is
recorded in the ledger precisely from one customer to another. The journal entries provide a
safer way to make purchases and a practical reason to conceal one's identity, therefore this
strategy almost completely prevents frauds and hackers from taking place.
The diversification that cryptocurrencies brings to an investor's portfolio is another
benefit. Diversity is essential for a successful long-term portfolio, regardless of the investor's
background, whether they are an asset manager, a hedge fund manager, or just the regular
individual saving for retirement. The capacity to increase diversity is what gives investors
stable returns. The main objective of diversity is to develop ways to reduce or offset the
effects of poor investment years. The main objective of diversity is to develop ways to reduce
or offset the effects of poor investment years. A well-diversified portfolio gains power and
strength by include bitcoin among other assets like IPOs, REITs, and individual equities.
As a researcher explained, compared to certain more reliable but lower risk assets,
Bitcoin particularly may increase risk in a portfolio 8. But, in virtually every simulation that
was performed on the various portfolios, Bitcoin increased diversification and boosted the
risk-to-reward ratio. All four of the portfolio scenarios had higher risk to return ratios than
were actually tried to be executed. While the semi-constrained portfolio scenario's success
rates were inconsistent. This article explains the important risk to return ratio. It is always
vital to take into account the return received in relation to the risk involved. Cryptocurrency
raises risk, but it also improves reward more fairly. As a professional scholar explained, the
usage of cryptocurrencies enables investors to invest in better mutual funds, which enables
more stable and reliable retirement or other brokerage accounts. According to Wang, Guo,
and Wang's writings: Because of the lower average correlation coefficients between digital
currencies and conventional assets and the relatively high daily average return for most
digital currencies compared to conventional investments, the results point to the CRIX and
cryptocurrencies as a potential solution to help diversify investment portfolio 9. Also, the
efficient frontier plots show that adding the CRIX greatly widens it in comparison to standard
asset classes alone. Due to the many cryptocurrency variants, investors can use various
cryptocurrencies according to their market positions. Cryptocurrencies that are either cash
cows or rising stars can be categorized. Choosing certain indexes, much like the stock
market, is another approach to utilize cryptocurrencies to improve diversity. These divisions
may be based on a particular industry, such as produce or commodities, or they may support
financial instruments10.

Even the potential short-term gains that cryptocurrencies might produce may pique
the imagination of certain investors. So, it is demonstrated that Bitcoin functions as a buffer

8
"Portfolios of multiple assets." Portfolio Theory and Risk Management, 2014, 48-66.
doi:10.1017/cbo9781139017398.005.
9
Lee, D. K. C., Guo, L., & Wang, Y. (2018). Cryptocurrency: A new investment opportunity? Journal of
Alternative Investments, 20(3), 16.l.
10
"Equity Shares, Preferred Shares, and Stock Market Indexes." Fundamentals of Financial Instruments, 2015,
97-165. doi:10.1002/9781119199625.ch3.
against unpredictability at the extreme end of the cryptocurrency market's spectrum and
global uncertainty, however at short - term investment horizons than contractual dependent
findings11. Hence, short-horizon Bitcoin investments can aid investors in hedging global stock
market uncertainty, particularly during bear and bull market cycles as well as when
uncertainty is either low or high. As a result, Bitcoin offers investors who stand to profit
greatly from future market volatility a quick and easy solution for hedging. Cryptocurrencies
might possibly work well with the present financial environment with 401ks and IRAs
because they come in a variety of forms. High returns and employer matches are sought after
by these portfolios. Employer matching funds can be invested in cryptocurrencies as a risk-
free approach to diversify investments and earn high returns. The public's simple access to
cryptocurrencies is another benefit. Anybody may open a digital wallet as well as participate
in the trading and purchasing of bitcoins by remaining anonymous.
The setting is straightforward, which enables more straightforward money transfers
that are free and, once more, anonymous. Money can be transmitted fast and simply using
cryptocurrencies. Compared to regular money wiring, which may take as long as twenty-four
hours, cryptocurrency wiring occurs in a couple of minutes 12. Cryptocurrency transfers have
occasionally just taken a few seconds. Intercontinental and other long-distance transfers are
far less troublesome and straightforward using cryptocurrency compared to wiring. Instead of
having large transactions subject to holds like in a traditional banking system, receivers can
easily get a sizable amount of money. There are no limitations on the recipients of payments
made by users, nor is there a limit on the total amount of bitcoin that may be sent in a single
transaction. Although cryptocurrency wiring may not seem to be a big deal compared to
traditional money wiring, holds on wired funds at almost all financial institutions can be
anywhere from three days to a few weeks. These holds may be a significant problem for
organizations and other people who need to swiftly transfer big sums of money around.
Sometimes a firm needs money right away just to keep open and run. These particular
individuals and businesses now have a special route to efficiently receive and send money
thanks to cryptocurrency.
A key feature of cryptocurrencies that is influencing their widespread popularity is
their benefits of anonymity and ease of transfer. The advantages of currency rates and
inflation come together with the advantage of wiring. The capacity to transmit money to
anybody, anywhere in a couple of minutes once the Bitcoin network processes the payment,
according to a research results, “A total of 21 million Bitcoins serve as a hard upper limit on
the amount of coins. There is no chance for inflation to arise in the system since neither
political forces nor companies are able to alter this arrangement”. In addition to the
convenience that wire offers, another researcher is talking about the advantages of using
strong dollars to your advantage. If the business decides it is appropriate, this number may be
altered, but only during the mining process. Using the influence of forex markets and
avoiding inflation are the two components of the economic benefit. Without paying any

11
Nakagawa, Kei, and Ryuta Sakemoto. "Market Uncertainty and Correlation Between Bitcoin and Ether." SSRN
Electronic Journal, 2022. doi:10.2139/ssrn.4076411.
12
Hamilton, Clovia. "Money is Morphing - Cryptocurrency Can Morph to Be a Sustainable Alternative to
Traditional Banking." SSRN Electronic Journal, 2022. doi:10.2139/ssrn.4287874.
exchange rate costs, the trading rates can involve purchasing cryptocurrencies when a certain
nation's currency is weak and then trading them when it is strong. This has the potential to be
an excellent investing tool and perhaps a hedging tool for upcoming commercial agreements.
The inflation advantages are derived from the predetermined figures created just for Bitcoin.
Cryptocurrency transfers have occasionally just taken a few seconds. Intercontinental
and some other long-distance transactions via wire are far less difficult and straightforward
using bitcoin. Instead of having large transactions subject to holds like in a traditional
banking system, receivers can easily get a sizable amount of money. There are no limitations
on the recipients of payments made by users, nor is there a limit on the total amount of
bitcoin that may be sent in a single transaction 13. Having the same quantities implies there
won't be inflation since the market won't be diluted by cash flooding it and vice versa. As
there is less inflation than conventional investments, which must also take into account
inflation, the dollar value is stronger, improving the quality of the investment. This absence
of inflation also improves our understanding of the return on investment for cryptocurrencies.
The fact that there are no government rules or taxes is an extra benefit that goes hand in hand
with privacy and open access for the general public.
Currently, earnings and revenue from bitcoin are now exempt from taxation, and the
national government has no accessibility to it. With the exception of depositing and
withdrawing, there are no third parties engaged because of the intractability of
cryptocurrencies. The owner of the digital wallet in the cryptocurrency financial system has
few limitations on what they may do with the money. There are no other non-tax charges
when there are no constraints or governmental regulations. Cryptocurrency has a 25% capital
gains tax, which may be a major contribution and provide a more genuine and realistic
investment gain when used in place of traditional dollar profits.
Fundamentally, adopting cryptocurrencies as the transaction currency can reduce all
significant tax ramifications from significant capital gain transactions. Due to
cryptocurrencies not being subject to government taxes, the return is lowered as a result of
capital gains and investment taxes. The middlemen effect is eliminated by cryptocurrencies
due to the absence of government interference. Charges are produced by the middleman
effect in legal, administrative, and enforcement procedures. Another benefit is that
cryptocurrencies don't experience inflation or value degradation. With a few exceptions, all
cryptocurrencies have a rigorous cap on the number of coins that may be created.
Cryptocurrency inflation ought to not be a problem when making an investment or doing
studies due to the ceiling on the quantity of cryptocurrencies.
Cryptocurrencies will continue to exist with the same amount since they are not under
corporate or governmental control, protecting their value. Using cryptocurrency, it is possible
to keep the identity of the giver of the funds a secret. This donation may be advantageous
owing to the confidentiality of cryptocurrencies as well as the simplicity of donating huge
quantities of money with no delays. Another advantage of becoming a charity is that bigger

13
Dimitri, Nicola. "Transaction Fees, Block Size Limit, and Auctions in Bitcoin." Ledger 4 (2019).
doi:10.5195/ledger.2019.145.
tithing contributions can be made because profits are not taxed. There can be more money
donated to tithing because bitcoin income is not taxed.
A remarkable innovation made possible by cryptocurrencies is the possibility for the
average person to invest and save in this revolutionary financial instrument. As a professional
scholar noted, proponents of Bitcoin contend that the digital money may liberate people
living under oppressive institutions of all stripes, including political dissidents and women
attempting to keep their earnings away from spouses or brothers. In the same vein, supporters
contend, Bitcoin may have a significant societal impact by providing access to those who are
financially disadvantaged. Two billion individuals still conduct their business outside of the
official international banking system. But, anyone with a smartphone may use bitcoin, and a
startlingly high proportion of them are already wirelessly linked. The chance has been offered
for those who could never save much to invest in their future, as Warden outlines above.
Some people, for whom traditional savings are less of a possibility, really benefit from this
novel and creative method of investing. More chances will be created for the unconventional
investor as a result of this new alternative. Bitcoin takes use of the fact that these people don't
need access to public information. Due to historical difficulties or a lack of personal
information, this opportunity enables those who may not otherwise be able to create a savings
account to invest or save money.
For the typical individual, this might not seem like a problem, but adoptees from other
nations may struggle to get appropriate documents for financial transactions. Even for some
persons with criminal backgrounds or other dubious pasts, the conventional savings
institutions may not be the most straightforward and ideal course to pursue for these persons
who now wish to change. Another advantage of cryptocurrencies is their absence of
information that can be traced, which reduces the likelihood of fraud to an extremely low
level. A study found that users of Bitcoin are not in risk if a merchant or some other
transaction participant suffers a hack and loses conventional personal or financial data about
its clients or itself. Only if hackers manage to get users' private keys are they a threat to them
as Bitcoin users. Although a research paper primarily focuses on Bitcoin, it is applicable to
the majority of cryptocurrencies. The danger of a hacker gaining entry to personal accounts is
almost nonexistent.
Other than that, a procedure, such as something as straightforward as credit card
fraud, is made to be almost impossible by the lack of identifiable information. This is because
the data must be entered into the digital ledger. It would be nearly hard to get through each of
the several strains required to steal the wallet owner's personal information. Cryptocurrency
transactions are safe because the required backtracking can be done quickly. The user's
laziness might result in severe sanctions for those who seek to hack illegally and violate
someone else's privacy. Due to the relationship, the illegal behavior may have more serious
consequences than just getting caught hacking but may also result in accusations against
many other trusts. For those looking to hack cryptocurrencies, the more severe and harsher
penalties combined with the extremely low likelihood of fraud generate greater hurdles and
problems and a less favorable situation. Many of these court cases were resolved through
fees, but in one recent example, Joel Ortiz received a ten-year term for his criminal charges.
8.3 Disadvantage of Cryptocurrency
There are actual drawbacks and disadvantages towards the digital currency, despite
the general optimism over its future. First off, both investors and regular customers are
greatly discouraged by their lack of expertise with cryptocurrency. Many uneducated
individuals buying in cryptocurrencies as just a fad create a very volatile market. According
to a researcher, barely anything is known because Bitcoin is still considered quite new
technology in the financial market. This knowledge gap will be posing a significant danger to
the financial industry, particularly the currency markets. The value of any currency is
determined by customer confidence, as evidenced by the American dollar's widespread use
internationally. This guarantee is lacking from Bitcoin as well as other currencies14.

Furthermore, illiteracy lowers people's ability for investing and raises the risk that
they would lose money. All cryptocurrencies have the possibility of substantial price
volatility due to their young. Having stated that, the larger-named coins may see the greatest
price fluctuations. This price fluctuation is due to novice cryptocurrency investors. These
investors tend to be more concerned with generating quick money than your usual bitcoin
fans who are interested in investing for the long haul. Most of these new comes in consumers
will buy bitcoin at a high cost, just like the majority of people on the traditional stock market.
Because a beginner trader has a limited risk tolerance and makes a loss if they buy at a high
cost and the market falls, this is a dilemma. Many of these novice customers withdraw their
money since they have limited risk tolerance, which leads prices to fall. In conclusion,
significant price disparities only benefit skilled speculators' arbitrage games. Because of this,
the volatility of cryptocurrencies usually works to the advantage of those who have above-
average financial assets, a lot of spare time, and in-depth knowledge. But such
unpredictability also hurts people who are not as privileged. The only possible advantage of
bitcoin instability is that it will eventually destroy itself.
Both new buyers and the cryptocurrency market find the instability that
cryptocurrency produces horrifying. Due to inexperience and low risk tolerance, those who
are less fortunate in understanding the pattern and instability of the market may suffer severe
consequences. The market failure that has traditionally been visible inside the New York
Stock Exchange may not be the end of markets due to this instability. However, the market
could suffer greatly if marketplaces as young as Coin Base and cryptocurrency in general
collapse. Due to their reliance on faith and lack of financial backing, all currencies are
susceptible to falling in value in the event of market fails. Another drawback of
cryptocurrencies is the need for a lot of faith in the system and product. The bulk of
cryptocurrencies are backed by trust, despite the fact that others are backed by commodities.
The commodity markets are also quite volatile. The US dollar is comparable to this. Bitcoin
is supported by the belief and acceptance of its users and owners. The belief that
cryptocurrencies will still exist tomorrow requires confidence because there is no physical
location where investors can go or governmental body to enforce them. The danger of an
14
Isabelle, Salle. "Is Bitcoin the Digital Gold? An experimental investigation." AEA Randomized Controlled
Trials, 2022. doi:10.1257/rct.9274-1.0.
overnight collapse to an investment is negligible because most financial organizations are
insured and supported by the federal government. As opposed to banks or other institutions,
cryptocurrency will don’t have any insurance and is unable to be protected against liabilities
or the customer will need to paid off with other assets. The main issue here is trust. However,
the requirement of a technique transition merits a few further remarks. Since a digital
currency's protocol specifies both the coinage and trade of the basic money, issuing
obligations on a fractional-reserve foundation requires more than simply parameterizing
coins. Even if it were processed on the identical blockchain technology, a bank that desires
to alter its issuance in reaction to demand would have to create a new protocol that is
incompatible with the initial coinage and trade mechanism. Moreover, the obligations of
different issuers would not be compatible.
The protocol and coinage methods utilized with cryptocurrencies are also
problematic. Trusting that cryptocurrencies will operate properly is another problem. As a
researcher stated, the blockchain duration window is heavily utilized. Transactions are
documented in this window, and if it closes too quickly, the correct journal ledger cannot be
written. This may make it more difficult for users to get bitcoin from one another. Also,
because these currencies have no regulating organization or insurance supporting them, it
may lead to a lot of problems that cannot be rectified. These problems need a great deal of
faith in a virtual, uninsured, and instrument-free system of money. putting investors at more
risk because they can no longer rely on an investment instrument to be in their account or
portfolio the following morning. Lack of acceptability is the third disadvantage associated
with the novelty of cryptocurrencies. Just a small number of bitcoin ATMs exist since
cryptocurrencies are still relatively new. There are over 2500 cryptocurrency ATMs in
America, with the majority of them located in large cities. Moreover, Bitcoin is not accepted
as legitimate currency by many financial institutions. The inability to purchase common
commodities like groceries, food, or clothing goes hand in hand with a lack of acceptability.
In addition to making things more difficult, using a broker substantially increases the cost
owing to commissions and of course with other expenses. Unchanged, the lack of
acceptability is a significant issue that will cause cryptocurrencies to stagnate or eventually
go out of date. Most of the traders will have a great need for liquidity, which bitcoin has not
yet been able to satisfy. Within the next five years, there may be quick liquidity as a result of
the rise in recognition. The lack of a governing authority is the next issue. There are benefits
and drawbacks to this. A significant disadvantage of that is being rejected by governing
organizations.
As a scholar makes the case that the Middle East could be very risky for
cryptocurrency. Because it is rejected by Islamic countries, there is a danger 15. The majority
of people in these countries are more concerned about the possible political consequences of
not using the official money, even though some ethnic groups may use cryptocurrencies. This
might seem like a trivial issue to the cryptocurrency-using economies of the US and the
nations around the world. To the greatest degree, this ignorance is false. The Middle East is
home to some of the wealthiest and most varied populations on earth. Without the monetary
15
"Operational Risk in Islamic Banking." Risk Management for Islamic Banks, 2015, 144-167.
doi:10.1002/9781118809211.ch7.
support for purchasing, trading, and dealing in cryptocurrencies, the market would drastically
shrink. There isn't much information out there about how Americans feel about
cryptocurrencies. The U.S. government is a great deal more interested in tracking users and
discovering new cryptocurrency taxation methods. The Chinese government's classification
of different asset classes as public information indicates that the management is more upbeat
about how the country views cryptocurrencies. Although the public has the opportunity to
review this data, the government does not fully reveal its true intentions.
Another issue will be the possibility for cryptocurrencies to be used in illegal trading
activities and of course also some others criminal activities. Although the use by hackers and
scam artists may be unethical and unlawful, the use for far more risky objectives should
really raise some red flags. Cryptocurrencies may be used by criminal organizations to hide
money laundering, financing for terrorist organizations, as well as other illegal acts because
to their anonymity. According to a study, The Financial Union Task Force, a group that deals
with fighting money laundering and terrorism financing, has written a study on the issue, but
the discussion is just getting started 16. According to reports, the International Monetary Fund,
which deals with national-state-issued currencies, is unable to recognize virtual currencies
like Bitcoin as real money17. One thing that might damage the reputation of cryptocurrencies
is the employment of practices that are not only immoral but may even have disastrous
consequences. The potential for bitcoin to be misused by unlawful behavior as well as used as
a preferred method of financial transactions because of its appeal due to anonymity might be
disastrous. As a result, not just institutional investors but even regular individuals start to
doubt and dislike cryptocurrencies.
The unpredictability of cryptocurrencies is the last drawback. For many commodities,
the future is unknown and unclear. The future of cryptocurrency is harmed by not knowing if
it will last for more than a few years, which is a disadvantage for significant investors.
According to a group of researchers, the fact that the level of economic uncertainty affects
Bitcoin volatility suggests that traders and investors in the Bitcoin market should carefully
track the level of uncertainty in global economic policy initiatives when deciding on
investments usually involves the uncertainty of Bitcoin, which is an important factor in the
pricing of options. Investors may thus use information on the amount of market instability
throughout the world to enhance forecasts of Bitcoin unpredictability.
Investors suffer from the unpredictability of the investment and also the future since
upkeep requires ongoing attention. Cryptocurrency also has the drawback of making it
impossible to predict whether a given currency will even last for a long period. When it
comes to cryptocurrencies, many of the important factors that investors try to gauge, such as
liquidity, volatility, and sustainability, are in doubt. It is advisable to take on the least amount
of risk possible when investing, especially in daily life. The adoption of cryptocurrencies may
be seriously hampered by uncertainty resulting from a lack of historical market data. This
applies to both investing and general bitcoin use. With all the dangers associated with
16
"The Financial Action Task Force." Anti-Money Laundering: International Law and Practice, 2015, 69-81.
doi:10.1002/9781119208969.ch7.
17
International Monetary Fund, Bo Li. Last modified December 9, 2022.
https://www.imf.org/en/News/Articles/2022/12/16/sp120922-some-key-elements-of-crypto-regulation.
investing already, adding the unpredictability of cryptocurrencies might be a significant
disadvantage that could ruin some investors. In addition to price uncertainty, there are a
number of additional unknowns, such as how to find a lost wallet and if a cryptocurrency is
phony or real. As there is so much mystery around cryptocurrencies, there is a definite need
for more research to establish their security and worth.

8.4 Statutory definition of Cryptocurrency

The Financial Services Act of 2013 (FSA) and the Islamic Financial Services Act of
2013 (IFSA) are the two acts that are under the purview of BNM and serve as the basis for
the legal definition of "cryptocurrency" in Malaysia. The Financial Services Act (FSA) is a
comprehensive law that combines several laws governing the banking, financial services,
insurance, and payment services sectors as well as the control of Malaysia's financial markets
and management of foreign exchange. The Banking and Financial Institutions Act of 1989,
the Insurance Act of 1996, the Exchange Control Act of 1953, and the Payment Systems Act
of 2003 have all been consolidated and abolished by the FSA. In terms of the IFSA, it has
replaced and abolished the Takaful Act of 1984 and the Islamic Banking Act of 1983. The
(AMLA) (Sector 6), Capital Markets and Services (Prescription of Securities) (Digital
Currency and Digital Token) Order 2019 and other pertinent subsidiary laws have also been
analyzed in the study.
Concerns have been expressed about how cryptocurrencies should be classified in
light of current regulatory regimes since their emergence. Cryptocurrency and virtual or
digital currency are not specified specifically in Malaysia's Financial Services Act (FSA) or
Islamic Financial Services Act (IFSA). However, the meaning of "electronic money" offered
by all these legislation can serve as a starting point for comprehending how cryptocurrencies
are treated by the legal system.
Electronic money, as defined by Section 2(1) of the FSA and the IFSA, is any
payment device, tangible or intangible, that maintains funds online in return for money given
to the issuer and can be used to pay someone other than the issuer. In addition, legal money in
Malaysia is defined specifically in section 63 of the Central Bank of Malaysia Act 2009 as
being BNM-issued banknotes and coins. Section 10 of the Currency Act 2020 further
emphasizes BNM have the sole right to issue legal cash money. As a result, under Malaysian
law, the concepts of digital money and cryptocurrencies are not similar legally since they can
be easily distinguished from one another because the former is equivalent to legal currency
while the latter is not, as it is produced by other private businesses. This description gives a
good idea of the characteristics of cryptocurrencies, especially in terms of their use as a
medium of exchange and a store of wealth. It is crucial to understand that electronic money is
distinct from virtual or digital currencies. Electronically kept in digital accounts, electronic
money simulates paper money or legal currency and is governed by Bank Negara Malaysia
(BNM) regulation procedures.
Cryptocurrencies, on the other hand, are autonomous and function independently of
conventional financial systems. In Malaysia, the legal standing of cryptocurrencies is still up
in the air, but the concept of electronic money offers some suggestions for potential
regulation. Further regulation measures will probably be implemented to ensure
cryptocurrencies are used
Moreover, the Central Bank of Malaysia Act 2009's section 63 expressly identifies
banknotes and coins produced by the BNM as legal tender in Malaysia. The Currency Act
2020's Section 10 highlights BNM's exclusive authority to issue legal tender. As a result,
under Malaysian law, the concepts of digital money and cryptocurrencies are not similar
legally since they can be easily distinguished from one another because the former is
equivalent to legal currency while the latter is not, as it is produced by other private
businesses.

8.5 Legal Framework of Malaysia on Cryptocurrency

The first indication of cryptocurrency monitoring and regulation in Malaysia takes us
back to 2014, when BNM formally ruled that Cryptocurrency, the most popular
cryptocurrency, was not recognized as legal tender in Malaysia and was not subject to its
regulatory authority. This runs concurrently with Section 63 of the Central Bank of Malaysia
Act 2009, which stipulates that only banknotes and coins issued by BNM are to be taken into
consideration as legal tender18. The remark should not be taken to mean that trading in
Bitcoin or other cryptocurrencies is entirely forbidden. The BNM statement should be
interpreted as a warning to the general public about the dangers of using cryptocurrencies.
The comment stressed that now the BNM had adopted a tough stance against bitcoins in the
country during their early phases, but any dealers or buyers may still engage in
cryptocurrency trading or investing in the nation. While governing cryptocurrency exchanges
in Malaysia towards the end of 2017, BNM seems to have adopted a different strategy. At the
time, such currencies were seen as the "new standard," and BNM "cannot be indifferent to
these developments". The official cryptocurrency regulation in Malaysia was published by
BNM in February 2018 as part of the policy document "(AMLA) (Sector 6)". The Anti-
Money Laundering, Anti-Terrorist Financing, and Proceeds of Illegal Activities Act of 2001
(AMLA) will apply to reporting institutions under Sector 6 that run digital currency
exchanges, according to the policy document.
In addition, even if these institutions don't have a physical presence in Malaysia, they
are nonetheless subject to the duties under Sector 6's Paragraph 4.2. To further enhance
transparency of cryptocurrency activities in Malaysia and prevent the possible use of
cryptocurrency for money laundering and terrorism funding, cryptocurrency exchanges are
also required to undertake proper risk assessments on their customers. In addition, as
reporting institutions, digital currency exchanges must undergo Know-Your-Customer
(KYC) procedures that are similar to those that are required of licensed organizations under
Bank Negara Malaysia's regulation. The application of these responsibilities on Malaysian
cryptocurrency exchanges or businesses that provide the public with digital currency does
not, however, imply that they are permitted to present themselves as BNM-licensed

18
"Legislation." Bank Negara Malaysia. Accessed March 6, 2023. https://www.bnm.gov.my/legislation.
organizations. The Capital Markets and Services (Prescription of Securities) (Digital
Currency and Digital Token) Order 2019 was implemented in January 2019 to recognize
specific digital currencies and digital tokens that have satisfied the prescribed condition as
"securities" under the regulation of the SC19. Digital currency is defined in Regulation 2 of
Order 2019 as "a digital form of price that is registered on a decentralized public blockchain,
whether cryptographically managed to secure or not, and that acts as a medium of exchange
and is exchangeable with any currency of any kind, including through the granting of credit
or direct debit of an account.
However, the same law defines a digital token as "a digital form that is recorded on a
decentralized digital ledger, whether cryptographic keys or not" (emphasis added). Sector 6's
Paragraph 6.2 presents a virtually comparable perspective of digital currency, albeit further
excluding digital money as it is defined in the FSA and IFSA. It is asserted that the lack of
legislative regulation defining the term "cryptocurrency" inside the FSA and IFSA has now
been rectified with the definitions of cryptocurrencies and electronic tokens in Order 2019. In
accordance with Regulation 4 of Order 2019, issuers of digital currencies and tokens. A
punishment of up to RM10 million and/or up to 10 years in prison might be imposed on DAX
operators for failing to follow the stipulated condition. The amended Recognized Markets
Guidelines were released by the SC on January 31, 2019, in response to Order 2019 entering
into force on January 15, 2019, and requiring DAX operators to register as recognized market
operators (RMO) 20.

The updated regulations state that recognized market participants are required to
safeguard the interests of their customers by maintaining up-to-date records of their clients'
investments as well as the money and digital assets they hold, setting up separate trust
accounts to receive funds from and pay to authorized financial institutions, and taking
precautions to protect customers from loss of digital currency, theft and also risks. Tokenize
Technology (M) Sdn Bhd, SINEGY Technologies (M) Sdn Bhd, and Luno Malaysia Sdn Bhd
are the three RMOs that have currently been registered to construct and run digital asset
exchanges in Malaysia.
The unpublished case of Luno Pte Ltd & Anor v. Robert Ong Thien Cheng is the first
time that the legality of cryptocurrencies has been put to the test in a courtroom. The
plaintiffs in this case ran a cryptocurrency exchange, and the defendant was one of their
clients. The plaintiffs accidentally transmitted 22.6 Bitcoins to the defendant's e-wallet
account with a third party by transferring an extra 11.3 Bitcoins instead of only 11.3 Bitcoins
due to a technological error. After the plaintiffs became aware of the multiple transfers, they
asked the defendant to refund the additional 11.3 Bitcoins, however the defendant refused
their request. The plaintiffs subsequently filed a lawsuit against the defendant to collect 11.3
Bitcoins or its equivalent in cash. The defendant was mandated by the court of first instance
to give the plaintiffs back 11.3 Bitcoins or their equivalent in Malaysian Ringgit. The High

19
"Digital Currencies as Securities and Their Impact on Regulation." Digital Currency: An International Legal and
Regulatory Compliance Guide, 2016, 67-70. doi:10.2174/9781681082233116010011.
20
Chen, William, and Gregory Phelan. "Digital Currency and Banking-Sector Stability." SSRN Electronic Journal,
2022. doi:10.2139/ssrn.4298972.
Court denied the appeal after the Sessions Court judge's sentence was sustained on appeal 21.
One of the key lessons learned from the country's first cryptocurrency lawsuit is that even if
Bitcoin or other digital currencies are not recognized as legal cash in Malaysia, they have
been viewed as a type of commodity because real money is used to buy them. Moreover, it
was decided that because the SC has regulated cryptocurrency trading, it is not against the
law.

8.6 Legal issue at cryptocurrency

One of the critical legal challenges that must be resolved for cryptocurrencies to
become generally acknowledged and accepted is this one. Because they are anonymous,
cryptocurrencies are a particularly alluring instrument for criminals to engage in severe
criminal activity. Governments from all over the world have thus given cryptocurrency
regulation a great deal of attention in an effort to monitor and manage it. Many instances, like
as the problem with the "Silk Road" issue on the dark web, may be used to illustrate how
cryptocurrencies are being used illegally. The "Silk Road" dark-web marketplace accepted
bitcoin as payment for a variety of illegal products and items 22. The use of cryptocurrency as
a form of payment allowed criminals from all over the world to buy and sell all kinds of illicit
goods, including narcotics and weapons, without having their identities revealed.

But, in 2013, US officials shut down the website and jailed the owner. The Silk Road
cryptocurrency exchange is one illustration of how cryptocurrencies may be used to carry out
unlawful actions including money laundering, sponsorship of terrorists, tax avoidance, fraud,
and many other unlawful activities. These illegal activities can be carried out using the
special characteristics of cryptocurrencies such as decentralization and anonymity. Another
instance is the legal proceeding "United States of America v. Michael Mancil Brown," in
which the latter was found guilty of extortion against former presidential candidate Mitt
Romney. The criminal demanded that Romney send him $1 million USD in bitcoin to a
special account set up for this reason in exchange for not disclosing any private information
that may harm Romney's campaign.
Most nations' laws stipulate that in order for a currency to be completely recognized
as legal tender, it must be issued by a central entity that has been granted legal authority 23. It
will be challenging to counterfeit the cash because of this specific entity's procedure of
producing notes and minting coins. The Central Bank Act gives the central authorities that
issue centralized currencies the legal authority to regulate their issuance and circulation in
accordance with the monetary policies that have been enacted to safeguard and preserve
economic stability. The decentralized nature of digital currencies, in which there is no central

21
Luno Pte Ltd & Anor v. Robert Ong Thien Cheng
22
"Silk Road (How to Buy Drugs Online)." Silk Road (How to Buy Drugs Online) and Rules for Being a Man, 2018.
doi:10.5040/9781350079625.00000002.
23
"Crypto Currency As New Legal Tender: A Theoretical Outlook." Elementary Education Online 20, no. 1
(2021). doi:10.17051/ilkonline.2021.01.703.
authority to regulate their issuance or maintain track of their operations, creates a legal
challenge.
Because cryptocurrencies are virtual and not backed by any actual assets or precious
metals, one of the biggest financial and legal concerns they face is volatility. The supply and
demand rule, which indicates the level of confidence that people have in a cryptocurrency, is
the primary factor affecting the value of cryptocurrencies 24. Because of this unstable standard,
it is unfavorable for regulators and policymakers since the value occasionally decreases
significantly as a result of a remark made by a powerful person or by national or international
authorities.
Cryptographic hashing and the blockchain technology it uses allow for decentralized,
anonymous, peer-to-peer transactions that preserve system integrity. In the case of a legal
situation involving fraudulent, inheriting, insolvency, or other criminal activities, it is still
controversial and uncertain whether the claimant will be able to produce convincing evidence
that's going to be recognized or recognized by a court 25. As a result, the previously mentioned
lack of a legal framework is a crucial and urgent issue that regulators must consider in order
to safeguard and maintain people's rights from being violated.
As previously said, estate law is significantly impacted by the absence of a legal
framework that governs bitcoin transactions. When technology continues to evolve and a new
area of law known as "digital inheritance" emerges, bitcoin must be taken into account as a
digital asset that can be inherited because it is an asset with a monetary worth. The succession
of such an asset is particularly difficult due to the intangible character of cryptocurrencies.
This problem, which has major ramifications, led to many people losing their lost bitcoin that
was kept in their crypto-wallet. The case of Matthew Moddy, a miner who perished in a plane
crash and left cryptocurrency in his crypto wallet, is just one of many examples that can be
used to illustrate this point. However, the family was unable to recover the cryptocurrency
because they were unable to obtain the private key to the deceased person's wallet. Thus, it is
necessary to pay attention to this important topic and to develop laws or recommendations.
A 2020 analysis from "Chainalysis," a Blockchain analytics company, said that
cryptocurrency fraudsters generated $4.3 billion in digital currency in 2019, more than
quadruple the amount they made in 2018. With the necessity to offer safe and secure access
to the internet, cybersecurity has emerged as one of the key challenges and a major topic that
significantly affects modern society26. The ability of individuals, governments, or other
organizations operating in contemporary cultures to function effectively and carry out their
everyday responsibilities without relying on a computer linked to a reliable and secure
internet is now fairly impossible to envisage. As a result, the internet has become an essential
and important element of human existence. The fact that cryptocurrencies are unregulated
and anonymous greatly contributes to the rise in the number of illicit activities connected to
24
Garewal, Karan S. "The Cryptocurrency Ecosystem." Practical Blockchains and Cryptocurrencies, 2020, 19-27.
doi:10.1007/978-1-4842-5893-4_2.
25
"Confidentiality and Data Integrity in Consortium Blockchain Applications for Model Based Systems ..." 2023.
doi:10.2514/6.2023-1113.vid.
26
M. O’Connell, L. Arimatsu and E. Wilmshurst, "Cyber Security and International Law", chathamhouse,
London, 2021.
them. Hence, it is clear that cryptocurrencies are currently used by criminals to execute a
range of cybercrimes as both a tool and a target.
Since the inception of cryptocurrencies, multiple computer hackers have been
initiated against either users or platforms. There are numerous cyberattack instances that
could be used, such as the attack of the Japanese exchange "Mt Gox," which led to the
company declaring insolvency. The company's electronic vaults included about 850 bitcoin,
which is worth about 473 million dollars. Another clear example is what occurred to the
Hong Kong-based marketplace "Bitfinex," where hackers stole 120 000 bitcoin (about US
$72 million at the time), leading the price of bitcoin to drop by less than 23% once the word
about this occurrence had spread. Another significant cyberattack targeted the South Korean
exchange Youbit, which shut down and declared bankruptcy after losing about 17% of its
bitcoin holdings27.

Here are a few instances of significant infractions that still occur on a global scale.
These cyber-attacks serve as a timely reminder of the bitcoin platform's vulnerabilities and
the value of its security level. There are several further varieties of cybercrime. Phishing is
one of the cybercrimes where perpetrators utilize certain techniques to trick consumers and
other organizations into thinking they are talking with real and trustworthy businesses. After
effectively duping its victim, the criminal then requests confidential data regarding the
individual or the organization, such as the log-in details, bank account information (including
details about the debit and credit cards information), the location, or I.D. number and etc. The
information that the bitcoin phisher is after is the wallet address. One of the largest
cryptocurrency exchanges in Asia with headquarters in Tokyo, "Coincheck," issued a
statement on May 31, 2020, citing many phishing assaults on the company's clients as an
example of phishing. The firm claims that a lot of client personal details, including name,
address, birthdates, and phone numbers, were compromised. Digital assets, however, have
not been taken or harmed.
Malware is only one of the tools that criminals may employ to conduct off their
unlawful activities. Malicious software, including the spyware, viruses, and also ransomware,
is referred to as malware. This type of software is designed to destroy a computer's data or
system or to gain unauthorized access to the network or computer in order to steal the data
that is kept there. A Peer-to-Peer trading website called Cashaa stated on July 11th, 2020, that
336 bitcoins were lost as a result of a cyber assault. Cashaa claims that the virus was inserted
onto one of the exchange's systems by the hackers, allowing them access to it. The Ponzi
scheme, a fraudulent investment plan meant to trick individuals into investing their money by
promising them a high return with little to no risk, is another crucial illustration of a
cybercrime. Ponzi schemes generate profits for their earlier investors using funds raised from
new investors. As a result, no money is invested28.

27
J. Detrixhe, "A bitcoin exchange has filed for bankruptcy after latest hack", Quartz, 2017. [Online]. Available:
https://qz.com/1160573/bitcoin-exchange-youbit-files-for- ankruptcy-in-south-korea-after-latest-hack/.
[Accessed March 6, 2023].
28
Cox, John. "Fast Money Schemes Are Risky Business: Gamblers and Investors in a Papua New Guinean Ponzi
Scheme." Oceania 84, no. 3 (2014), 289-305. doi:10.1002/ocea.5062.
8.7 The Legality of Cryptocurrencies Under Shariah
Regarding cryptocurrencies, Islamic scholars have differing opinions; some believe it
to be allowed (halal) while others believe it to be forbidden (haram). The principles and
characteristics of cryptocurrencies are stated in the beliefs that maintain it in the acceptable
category. Islamic regulations obviously do not cover the usage of cryptocurrencies in any
type of transaction, hence an Islamic digital currency model and infrastructure are required.
There are justifications for keeping cryptocurrencies in this group of forbidden things, such as
constitutional violations and practical problems that have been brought up by numerous
fatwas and scholars. The value of cryptocurrencies is unpredictable for a number of reasons,
including system hacks and other technological issues, which is another justification for
thinking of them as illegal.
Paper-based currencies are recognized to have a number of drawbacks, including
infinite supply, inflation, government misuse, and forgeries. These problems suggest that
paper-based money is not the best form of trade when it comes to Shariah law, which is
employed in Islamic banking and finance. On the other side, cryptocurrencies are more
secure, open, decentralized, rare, and incredibly unlikely to be attacked (forgery and abuse).
Some observers claim that some countries are not involved in the global economy. Unlike
depending on a centralized authority, blockchain technology and virtual currencies may
narrow this gap and give these countries autonomy and security over their own resources.
However, the digital divide prevents many people from having access to the internet, which
prevents them from having access to money or other forms of trade.
In some circumstances, such as when transferring money or purchasing for goods or
services, crypto assets like Bitcoin might well be considered legitimate according to a
research on the Islamic viewpoint on cryptocurrencies. Nevertheless, because to the extreme
volatility that exists in their market price, it is not allowed to buy cryptocurrencies with the
intention of accumulation or investment. There has another important aspect in assessing
whether a cryptocurrency is legal or illegal is the way it was obtained. It is acceptable if a
cryptocurrency were purchased in order to settle payments for products or services; however,
if the cryptocurrency was mined for savings with the hope that it would provide a high return
in the future, then it is nothing more than speculation (maysir) and taking an excessive risk
(garar). ff a cryptocurrency can get over its drawbacks, it may be acceptable and even
endorsed by the government. For instance, a cryptocurrency can be accepted as Islamic
currency provided it can guarantee some degree of exchange value stability, protection from
misuse of the currency, such as its use in fraudulent operations, and compliance with Shariah
and financial regulations.
Because of the risk and safety concerns, cryptocurrencies are prohibited in some of
the world's most developed economies, including China and Russia. The conformity of
cryptocurrencies in Islamic nations with Shariah law presents additional obstacle. A number
of Islamic nations, including Pakistan, Algeria, Egypt, and Morocco, have partially or totally
outlawed cryptocurrencies. The compatibility of cryptocurrencies with Islamic teachings and
Shariah law, on which many experts hold varying opinions, is the reason for its whole or
partial ban. Yet, the reason for purchasing the cryptocurrency is a crucial element in
determining its permissibility or impermissibility. According to the majority of scholars, it is
illegal to own cryptocurrency if it is purchased with the intent to profit, but most scholars
consider it legal to own cryptocurrency if it is purchased only for use as a medium of trade.

8.8 Islamic Financial Technology and Regulation Challenges

Fintech is already providing consumers and investors with enormous advantages.
Service providers are forced to adopt a business model as a result of the severe competition
from FinTech firms. However, the development of Fintech also poses significant risks to
investors and authorities, who must devise strategies to protect both the interests of investors
and customers. Customers benefit from new and creative financial services, and the growth of
fintech has increased the accessibility and competition of conventional financial services. As
FinTech has developed over the years, more strict legislation became necessary after the
global financial crisis of 2008. The emphasis now is on the use of technology to offer
services rather than the products or services that were previously provided. The task now is
for regulators and developers to strike the right mix between the advantages of new
developments and the danger they pose. If Fintech growth is not properly controlled, it could
be similarly disruptive. Since FinTech is still in its early stages of growth, only factors like
regulation can be used to comprehend how it affects different parties.
The industry-wide change that is taking place is something that FinTech businesses
need to be more aware of because it will affect them and they need to figure out how to deal
with it. In this early stage of creation, a more flexible and philosophy strategy ought to be
used rather than rigid control. To encourage more invention, regulating authorities should
adopt a friendly and accommodating stance. As more FinTech companies need to be
regulated, the requirement for regulatory technology (RegTech), the potential of bank
regulation, will increase29. RegTech growth will encourage the authorities to improve and
rethink current FinTech regulation. New RegTech organizations are required for the web
reporting, streamlining, and provision of software for regulation. The big data strategy will be
used to regulate the new FinTech organizations. The externalities should be viewed as an
accountability failure since they can be seen as a result of financial market failure. The
government and governing organizations will be forced to enact legislation that will treat
these costs as internal costs as a result of this reconceptualization.
The regulating structure must be based on principles in order to achieve a balance
between security and accessibility to the financial services provided by FinTech businesses.
Decentralized nature of the financial services provided by FinTech companies makes it
exceedingly difficult to implement a uniform regulation that applies to all of them 30.
Government can enhance people's lives through disruptive innovation if we adopt a more
permissive, transparent, and principle-based approach to Fintech regulation. The company
29
"The Rise of RegTech and the Divergence of Compliance and Risk." Global Fintech, 2022.
doi:10.7551/mitpress/13673.003.0015.
30
"Fintech and Financial Services." 2017. doi:10.5089/9781484303771.006.
has already established a target for enhancing and growing Islamic FinTech regulations, but
doing so is challenging31.

As Islamic FinTech and fintech in general continue to expand quickly, possibilities

and threats are presented to regulators and policymakers. Regulators and lawmakers must
consider the acceptance and tolerance of Islamic FinTech by finding the correct balance
between the advantages it offers and the danger it represents in terms of greater risk, despite
the fact that sharia-based agreements are much more complex than standard financial
contracts32. By the creation and application of FinTech, the regulatory challenges that Islamic
financial institutions formerly faced have been overcome. More transparency will result, and
the improvements will help FinTech regulators33. Banks, startups, and FinTech businesses
make up the players in the big FinTech industry. The regulatory framework is still being
developed in the majority of the nations, and some of the existing regulations are in
contradiction with it. All of these can help Islamic FinTech by providing stakeholders with
more palatable regulatory options.
Because young entrepreneurs, bankers, and innovative banking enterprises have
developed, there has been a rise in demand for identifying and classifying of fintech firms.
Transparent and clear regulation is essential for the success of creativity in the fintech
industry. While they benefit consumers as a whole, new and innovative technologies should
be supported. RegTech can help all of these firms handle their regulatory issues. Financial
authorities, who are already struggling to regulate financial institutions in the wake of the
financial crisis, are put to the test by the rapidly expanding Fintech industry. "Regulatory
Sandboxes" attempts to promote innovations and allow them to be tested in a secure setting.
Another research on Fintech in the European Union (EU) nations finds that the EU gives
FinTech businesses a platform to support innovation in the financial services sector while
protecting investors' and consumers' interests. The EU wants to enable all of these businesses
to provide tech-enabled technologies like big data, AI, blockchain, and cryptocurrency.
Regulation of these groups is only one aspect of promoting and supporting innovation 34. The
adoption of technology in Islamic fund management is a disruption that offers benefits while
also raising new regulatory concerns. AI and Islamic money management are now
synonymous.

8.9 Currency that not illegal but also not legal tender
When the first version of the Bitcoin white paper appeared in 2008, it made the case
that Bitcoin could serve as a decentralized form of computerized money that would
31
De Anca, Celia. "Fintech in Islamic finance." Fintech In Islamic Finance, 2019, 47-61.
doi:10.4324/9781351025584-4.
32
"Risk Management for Islamic Banks." Contracts and Deals in Islamic Finance, 2015, 235-273.
doi:10.1002/9781119161059.ch23.
33
Abdeljawad, Islam, Shatha Q. Hashem, and Mamunur Rashid. "Fintech and Islamic Financial Institutions:
Applications and Challenges." FinTech in Islamic Financial Institutions, 2022, 193-222. doi:10.1007/978-3-031-
14941-2_10.
34
Hassani, Hossein, Xu Huang, and Emmanuel S. Silva. "Fusing Big Data, Blockchain, and Cryptocurrency."
Fusing Big Data, Blockchain and Cryptocurrency, 2019, 99-117. doi:10.1007/978-3-030-31391-3_5.
circumvent established financial organizations. Since the publication of the original white
paper, the first cryptocurrency and its offspring have mainly turned into assets for many
people rather than useful payment methods.
Some have been pushing for the government to recognize it as lawful money, or more
simply, a recognized form of payment, for that reason. Section 10 of the Currency Act 2020
states that in this situation, "only cash note and cash coin issued by the Bank shall be legal
cash in Malaysia at its face value provided that the cash note is not damaged and the currency
coin is not interfered with."35. As there is no cryptocurrency issued by the Bank Negara, it is
not recognized as lawful money in Malaysia. In reality, the Malaysian central bank, Bank
Negara declared in 2014 that Bitcoin was not accepted as lawful tender in the country.
The activities of Bitcoin are not governed by the Central Bank. As a result, it is
suggested that the general population exercise caution when using such digital money.
Additionally, it was claimed in March 2022 that Malaysia has no plan of recognizing
cryptocurrencies as legal currency, according to caretaker deputy minister of finance Mohd
Shahar Abdullah's remarks in parliament.

35
Bank Negara Malaysia. Accessed March 6, 2023. https://www.bnm.gov.my/documents/20124///3448d035-
44ff-afca-091c-3cc31d7e53d8.
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