Cryptocurrencies are compatible with Shariah law in most cases, except where they are banned by local laws, according to the findings of a study published this week.
The 22-page document, which was prepared by Indonesia’s Blossom Finance, examined whether cryptocurrencies like Bitcoin was compliant with Shariah, an important part of Islamic tradition and practice.
The report concluded that cryptocurrencies can be considered Islamic money, assuming it is permitted locally.
Islamic finance operates differently from mainstream banking, and is derived from Shariah law. For example, collecting interest is forbidden, known as ‘riba,’ as well as applying unique rules for leasing, sharing profits, and more.
With the growth in cryptocurrency in recent years, the question has become more pressing, particularly for Muslim investors and cryptocurrency enthusiasts. There has even been a fatwa issued against Bitcoin from Egypt’s leading Islamic cleric, which had previously cast doubt on whether cryptocurrencies could be Shariah compliant.
However, according to the report from Blossom’s founder Matthew J. Martin, and their Shariah compliance officer Mufti Muhammad Abu Bakar, cryptocurrencies do in-fact fall on the right side of the law.
Martin said, “Contrary to popular myth, Shariah law is not a single set of rules; it’s is a scholarly field subject to differing interpretations and opinions on various matters…Several recent fatawah issued by prominent Muslim scholars offered incomplete or contradictory opinions on the topic. With all the confusion out there, we wanted to offer clear guidance supported by solid research that benefits both laypeople and practitioners of Islamic finance.”
The report also recognises the superiority of national laws, and the differences this can make for Muslims and Islamic financial practitioners around the world. It suggested, for example, that because Bitcoin is legal tender in Germany, Muslims in Germany would be permitted under Shariah law.
Wherever cryptocurrency is recognised as ‘customary money,’ it can be deemed in compliance, according to their findings.
While the position is hotly debated between Islamic scholars, the report will be welcomed for bringing some clarification, and offering some justification for cryptocurrencies compliant with the Shariah law.
Their report goes a stage further, suggesting that rather than cryptocurrencies, it is conventional banking that is contrary to Shariah principles.
“Blockchains prove ownership of the asset—it proves you actually have the money you’re sending in a transaction. Conventional banking literally loans money into existence, and that is completely incompatible with the Shariah principles of money,” Martin said.