Islam is not only the world’s second-largest religion but also the fastest growing religion globally. Today, there are more than 1.6 billion Muslims in the world. Islam is also one of the religions where financial systems have clear guidelines based on religious principles. With the soaring adoption of bitcoin in markets such as the Middle East, which is a predominantly Muslim region, the question on whether bitcoin is acceptable in the Islamic religion has given rise to the debate on whether bitcoin is halal or not.
Currency in Islam
Islam is one of the few religions where Muslims believe that religion is a complete code for life. This means that the followers look up and live their lives according to the Sharia law.
According to Teaching Tolerance, Sharia – which is an Arabic word – means “the way” or the path to water”. The Sharia law is based on the Quran – Islam’s holy book – as well as the life of Prophet Mohammed. It encompasses laws on how Muslims can practice Islam ensuring that people are treated justly, that financial systems are fair, and has laws on marriage, inheritance, punishment, and divorce.
Sharia law, therefore, has various rules regarding what a currency is. In trying to understand whether bitcoin should be considered halal by Muslims, it is important to first understand how currency is viewed in the Islam religion. For a currency to be acceptable in Islam, it must have intrinsic value – this is the value or worth that something has – and should be difficult to get. Additionally, according to Muslim scholars, currency or money, is defined as a means of use in the purchase of an object of sale. For instance, gold and silver in Islam are considered as halal as they were used historically as legal tender in the form of gold Dinar and silver Dirham.
Islam also requires that a currency should not be linked to any debt. That is because the religion believes money should be used as a means of exchange and not as a product. To this extent, bitcoin can be viewed as a currency as it is used as a means to pay for goods in different countries with various people earning their salaries in the form of bitcoin.
The Islamic banking principles also forbid the acceptance of interest of any kind. While charging interest benefits the lender, it does not do the same for the borrower and is thus not halal. Currencies should not be affected by inflation and should have a stable market price. Furthermore, a currency according to the Sharia law should have proof of existence and be tangible.
Islamic View on Bitcoin
While bitcoin’s existence can be proven, the digital currency is not tangible like other currencies such as the dollar or Euro. However, there are certain similarities between bitcoin with gold and silver. They are all mined, the supply and demand dictate its value, they can both be used as currencies on their own and are also scarce.
Still, for a currency to be considered halal in Islam, it needs to be acceptable by a considerable number of people in any given community or demography which is not the case (yet) for decentralised digital currencies. In Islam, the fuqaha (body of scholars), define people living in a community as government. With this view, cryptocurrencies differ in their qualifications for the stature as most governments in different countries are not accepting bitcoin as a legal tender. A good example is in countries such as Kenya, Uganda, Zimbabwe and other African nations, where investing in cryptocurrencies has been warned against but citizens still invest in them.
Most people view bitcoin as a form of money. When people think of spending bitcoin, investing or trading in it, they are usually doing so to make money. This was evident in the last year when the digital currency went mainstream and the prices soared to an all-time high of $20,000 before dropping to a low of $6,000 earlier this year. To this extent, the volatile nature of bitcoin also has some level of speculation. In this sense, bitcoin has some elements of gharar (risk) and Qimar (speculation) which contradicts the Sharia law.
As mentioned, the Sharia law also teaches about the fairness of financial systems. Most Islamic scholars and jurists agree on the fact that bitcoin is blockchain-based which prevents any level of exploitation or unfairness. To this extent, the digital currency is permissible in Islamic. However, the same scholars believe that bitcoin can be manipulated in closed circles as there have been allegations of multiple market manipulations and bitcoin exchanges faking the trading volume in the past year. In this aspect, some scholars view bitcoin as haram.
Fintech Based on Sharia Law
When it comes to banking and finance, Muslims unlike other religions, have interesting needs since the Sharia law has guidelines on financial systems. As such, acceptance of any interest is considered illegal in the Islamic religion as well as investing in the alcohol, tobacco, pornography, pork, and sex industries. An increased interest in Islamic Banking has led to the first ever discussion on Islamic banking by the executive board of the International Monetary Fund. This growing demand has led to the use of blockchain technology by various entrepreneurs to meet the needs of the Islamic banking.
One such company is Blossom Finance, an Indonesian fintech startup that was established to provide microfinance services to small businesses and Muslim entrepreneurs. The Fintech startup collects capital from different investors globally using the cost-saving bitcoin transactions and provides the funds to microfinance units for different investments. After a 12-month period, the company issues the profit made back to the investors. Blossom Finance clearly demonstrates how blockchain transactions and bitcoin obey the Sharia law. How so? It is because the company does not get or distribute interest and it ensures that the microfinance institutions getting funded do not invest in haram businesses. The business model is also built on Mudharaba (risk-sharing) which is permissible according to the Sharia law.
Moreover, with bitcoin, the transactions are transparent and are recorded on the blockchain, which is open to anyone for scrutiny. In this regard, Matthew J. Martin, Founder and CEO of Blossom Finance said, “Bitcoin guarantees that the money invested into small Islamic businesses is not done on margin, and that its existence as a real asset is publicly verifiable using the blockchain. Bitcoin ensures ownership of underlying assets with 100% mathematical certainty.”
And Blossom Finance is not the only fintech company to offer solutions in Islamic countries. Goldmoney Inc, a company based in Toronto, implemented the halal gold standard and got certified as Sharia-compliant for its gold-based financial product. This puts the company on the list of Islamic finance institutions that are utilising the blockchain for Islamic finance transactions.
In order to gain access to millions of Muslim clients in Malaysia, HelloGold introduced an online platform that is both blockchain-based and Sharia-compliant to enable customers to make direct transactions while incurring low costs for gold trading.
Is Bitcoin Halal or Haram?
This is one question where Muslim scholars have differing opinions. While some scholars view it as halal, some see it as haram. The latter make their argument based on the fact that its price volatility makes it a speculative currency, hence not compliant with Sharia law. Also, in Islam, a currency has to be tangible which is not the case with bitcoin or any other digital currency for that matter. On this point, another group of scholars argues that although money is tangible, its paper is worth close to nothing and is prone to damage, theft, illegal duplication, and loss. This is not the case with bitcoin.
In that regard, they see bitcoin as having proper value compared to money. Moreover, fiat currency is debt-based as most of the money in circulation is on loan which earns interest. Unlike fiat currency, bitcoin is asset-based making it abide by the Islamic finance principles. To this extent, most scholars believe that cryptocurrencies such as bitcoin are actually more halal than fiat currency.
The above argument shows the differing takes that scholars have concerning the halal nature of bitcoin. With these differing views from Muslim scholars, it is hard to decide whether bitcoin is indeed halal or haram. And while there are differing views, some Muslim scholars have only warned their Muslim counterparts to be wary of the digital currency due to its price volatility but have not declared it as impermissible according to Islam. Although there is still an ongoing debate on this, Muslims who want to invest in bitcoin or any other digital currency for that matter should look at the risks involved and tread carefully before making any investments. As digital currencies continue to soar in demand, it remains to be seen on whether Muslim scholars will eventually reach a consensus on the halal nature of bitcoin.
Nigeria’s Capital Markets Regulator to Create Framework for Cryptocurrency Regulation
Nigeria’s blockchain community and cryptocurrency exchanges could get a clear stance on the classification of cryptocurrencies from the country’s Securities and Exchange Commission (SEC) before the end of the year.
A Framework for Cryptocurrency Regulation Is Coming
According to a report by Pulse, the regulatory institution is set to implement the roadmap for the fintech industry as it pertains to its capital markets. According to the roadmap, between the last quarter of this year and the first quarter of 2020, the SEC is expected to:
- Decide on its preferred classification of cryptocurrencies (either as commodities, securities or currency).
- Develop a framework for the regulation of Virtual Financial Assets (VFAs) and VFA Exchanges.
- Issue guidelines and standards for whitepapers and ICOs.
- Develop a framework for KYC and due diligence for cryptocurrencies, Virtual Financial Assets, tokens, and ICOs.
- Define clear classification for tokens based on their unique properties. They could be payment tokens, asset tokens, utility tokens or others.
The Acting Director-General of the SEC, Mary Uduk, revealed at a Capital Markets Committee briefing last month that the Working Group to drive the implementation of the roadmap would be chaired by Adeolu Bajomo, the Vice-President of the Fintech Association of Nigeria.
Cryptocurrencies as Commodities or Securities But Not as Currency
One of the recommendations that stands out in the roadmap, which was prepared by a committee comprised of officials from the regulatory agencies, the private sector, and a member of the blockchain community, is for the SEC to recognise cryptocurrencies as commodities or securities, and not as a currency. This classification is expected to have tax implications for investors.
This recommendation is in line with the central bank’s directive last year, which stated that “virtual currencies” were not a legal tender.
Cryptocurrencies have lacked a single, definite identity. For example, Germany is treating them as money and means of payment while the US uses the Howey test to decide whether a cryptocurrency is a security or not.
Crypto Adoption in Nigeria
Citigroup, a US investment firm, reported in January 2018 that Nigerians were the third-largest holders of bitcoin as a percentage of gross domestic product (GDP). The use has ranged from trading to making fast, low-cost cross-border transactions, saving on the high fees taken by commercial banks and traditional money-transfer services.
Nigeria has a fast-growing young population with a significant chunk below the age of 35. But there is still a small number of people with access to the financial system. Less than 50 million people with bank accounts in a population of over 180 million. Blockchain applications could be a great way to onboard millions of underserved people into the financial system.
With the SEC expected to take responsibility for the regulation of cryptocurrencies in the country soon, we can foresee more scrutiny of Nigeria’s biggest crypto companies, which could lead to a more secure crypto trading ecosystem down the road.
Poor Financial Infrastructure? Why Ghanaians Need Crypto More Than Ever
Ghanaian investors continue to face difficulties as the Bank of Ghana (BoG) continues to probe fund managers for mishandling funds. Is it time for one of the fastest-growing economies to look at cryptoassets for financial freedom?
A Three-Year-Old Banking Crisis
The Ghanaian banking crisis started on August 14, 2017. The Bank of Ghana (BoG) revoked the licenses of UT Bank Ltd and Capital Bank Ltd and approved a Purchase and Assumption (P&A) transaction with GCB Bank Ltd that transferred all deposits and selected assets of the two banks after they were found to be insolvent.
The following year, the BoG subsequently revoked the universal banking licenses of five banks, including UniBank Ghana Limited, Construction Bank, Sovereign Bank, Royal Bank, and Beige Bank. Additionally, it issued a license to a newly created bank – Consolidated Bank Ghana Limited – which is wholly owned by the Government of Ghana.
After a tough time dealing with the aftermath of the shake-up in the banking sector, the BoG then proceeded with revoking the licenses of 23 insolvent savings and loans and finance house companies just weeks ago.
These happenings in the country’s financial sector have led to several issues in the world’s fastest-growing economy in 2019.
A Time to Consider Cryptoassets?
With the current turbulences in the financial ecosystem in Ghana, one may raise the question: “Is it time for Ghanaians to consider cryptoassets as investments with real asset ownership and transparency?”
Bitcoin and other decentralised cryptocurrencies are a natural fit in situations like these. For investors and consumers to escape the uncertainty of such a disorganized space, they will have to hold assets that they directly control.
Cryptocurrencies allow users to own their assets and give them independence from regulated, mainstream and established systems. With cryptoassets, no financial institution is responsible for the safekeeping of your funds and, therefore, cannot mishandle your funds.
Unlike the current situation where thousands of Ghanaians are not sure of the future of their funds due to the changes in the financial sector over the last three years, cryptocurrency users always have control of their funds and can access them at any time.
Imagine a pregnant woman in Kumasi, Ghana who kept her money in a savings and loans institution ahead of giving birth to cater for the hospital bills but cannot access her funds and is now stuck in the hospital because the institution has been closed down.
If she held bitcoin instead, she could pay in BTC or easily exchange it to cedi, to pay her bills without any issues.
Growing Interest in Cryptoassets in Ghana
Perhaps, the point made above has already been registered in the minds of many in the country who have shown interest in cryptocurrencies, especially bitcoin.
Currently, Ghana sits at number three on the list of countries on Google Trends for the search keyword “bitcoin” and Accra sits at number two for the keyword “buy bitcoin“.
With a more deliberate effort to push education and adoption – like the BlockTech Women Conference Accra 2019 held last week – the existing interest in cryptocurrencies could translate into growing adoption that could disrupt the current financial system in the West African nation.
Is Bitcoin Really A New ‘Safe Haven’ Asset?
The launch of the Bitcoin blockchain in 2008 was a low-key affair among a fringe group of cryptography enthusiasts. Just over a decade later, the pioneer cryptocurrency is a world-famous phenomenon with a market value of about $10,000 at press time.
This is certainly a remarkable turnaround, which only the most ardent early supporters could envision. That said, bitcoin as a currency has taken a life of its own and is gaining rather sophisticated market functions. One of these is the emergence of Bitcoin as a possible ‘safe haven’ asset. How ready is bitcoin to perform this unique function? Let’s find out.
Bitcoin currently has a solid market presence. Moreover, a great number of retailers in the market, especially online, accept bitcoin payments. This means that bitcoin users can freely operate and trade which is a great leap forward.
Trading is efficient and simple because of modern exchanges where you can trade for USD, trade BTC-EURX or any major fiat and crypto trading pairs. Generally, bitcoin is now a currency and an asset you can freely own and transact with ease. At the moment, there are over 250,000 bitcoin transactions each day across the world.
Incidentally, some of bitcoin’s intrinsic factors have made it play a unique market function. For one, bitcoin is a finite currency. Unlike fiat which is freely printed by Central Banks, there will only ever be 21 million bitcoin. Whilst this has placed a ceiling on mass adoption as a currency, the finite virtue has made it an attractive proposition as an asset.
The Case for Bitcoin as A Safe Haven Asset
For a historically volatile asset, bitcoin being discussed as a potential safe haven asset is remarkable. In years gone past, equity investors would regularly purchase gold during periods of market uncertainty to distribute risk. Gold is a traditional safe haven investment due to its scarcity and value. Can bitcoin take up such a role?
In the first few days of August 2019, stock markets went wild on fears of a USA-China trade war escalation. Simultaneously, bitcoin booked impressive gains of more than seven percent as opposed to the drops in the major stock markets. This is certainly not a fool-proof case for bitcoin as a safe asset. Regardless, crypto enthusiasts took the development with glee as part of a general argument for bitcoin’s status as a safe haven asset. The major arguments include:
- Bitcoin is effectively immune to geopolitical tensions like the trade wars.
- By virtue of decentralisation, bitcoin is independent of government monetary policy. This means that bitcoin prices are entirely market dependent. Accordingly, bitcoin (though significantly volatile) is attractive because it has no direct correlation to the volatility of other asset classes.
- Bitcoin’s scarcity gives it innate value, like rare metals. Satoshi Nakamoto capped bitcoin supply at 21 million.
Is it that simple though? The fact that bitcoin has a life of its own is an impressive aspect of its position as an asset class. However, the case for bitcoin as a safe haven asset is not as straightforward as it may seem.
Traditional safe haven investments are usually boring. Gold, for all the credibility it has, has generated an average annualised return of 0.32 percent over the last five years. As a matter of fact, its value most of the time is relatively consistent. This would be fitting for the name ‘safe haven’ as it remains safe in the midst of market volatility.
However, bitcoin, even in the most generous terms, would be a ‘colorful’ safe haven. Bitcoin may have a value trajectory unique from the regular stock markets. However, this does not take away bitcoin’s volatility issues. Therefore, investors are as motivated to diversify risk in a volatile stock market as they are to cash in on potential outsize gains.
Taking prices from August 2018 to August 2019, bitcoin has appreciated more than 100 percent. This is certainly a very impressive return from an investment perspective. However, it does little to lend credence to the general idea of a ‘safe haven’ asset.
Moreover, bitcoin still has to navigate a number of regulatory challenges with global financial entities because to truly gain the status of a mainstream ‘safe-haven’, regulators like the SEC have to be on board. Additionally, the stability of the coin against hard forks and security of secondary players like exchanges can add to its credibility.
Is It a Safe Haven Asset?
From the aforementioned, you can look at it both ways. For an investor looking to distribute risk and have an asset class whose volatility does not correlate to mainstream asset volatility, bitcoin can act as a safe haven investment. However, it fails to live up to the classic role of a safe haven like gold in the market. Regardless, this debate will only intensify as bitcoin matures and grows further.
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