Islam is the fastest growing religion in the world, according to Pew Research Center, there are about 1.6 bln Muslims in the world and they make up roughly 23 percent of the world’s population.The majority of the world’s Muslims live in Asia Pacific in countries like Indonesia and India even though traditionally areas of the Middle East and Northern Africa are traditionally associated with Islam.There are unique needs of Muslims when it comes to banking and finance.The Islamic Canonical Law, popularly known as Sharia is based on the teachings of the Quran and prohibits certain activities such as acceptance of specific interest which is considered usury (Riba) or investments in businesses which are contrary to Islamic acceptance for example alcohol.Recent interest in Islamic banking has risen with even the International Monetary Fund’s executive board holding the first ever discussion on Islamic Banking.Fintech and developments around Blockchain have been taking the world by the storm.

The rise of cryptocurrencies like Bitcoin and developments in Blockchain have also touched the Islamic world.In fact, the UAE has already got a Bitcoin exchange by the name of BitOasis and they also offer services like a Bitcoin Wallet.BitOasis also offers services in Qatar, Kuwait, Bahrain and Saudi Arabia.There are also services in the APAC region like Bitcoin Indonesia and Coinbox in Malaysia that offer Bitcoin-related services.bitcoin miner electric billAccording to the paper “Bitcoin in Islamic Banking and Finance” by Charles W. Evans, “The relationship between a distributed, autonomous Blockchain management systems (BMS) like Bitcoin—also referred to as a 'virtual currency'—and Islamic Banking and Finance (IBF).ethereum price targetIt shows that a BMS can conform with the prohibition of riba (usury)—as Bitcoin does—and incorporate the principles of maslaha (social benefits of positive externalities) and mutual risk-sharing (as opposed to risk-shifting).litecoin automatic mining

With regard to maslaha, the world's unbanked number in the billions and represent the majority of the world's adults.” In order to deeply understand this topic, we talked with Matthew J. Martin of Blossom Finance, a fintech startup based in Indonesia.Blossom Finance offers microfinance services that help entrepreneurs and small businesses.Matthew is a Muslim American based out of Indonesia and has worked with fintech startups like Boku and Xoom in the past.bitcoin core double spendHe told us that Bitcoin can be considered both a currency and a payment network and this distinction is important because the Sharia principles that apply vary.litecoin table“As a payment network, Bitcoin is halal.bitcoin cnmvIn fact, Bitcoin goes beyond what more conventional closed banking networks offer.ethereum wsj

Unlike conventional bank networks which use private ledgers where there's no guarantee that the originator actually owns the underlying assets, Bitcoin guarantees with mathematical certainty that the originator of the transfer owns the underlying assets.Conventional banks operate using the principle of fractional reserve, which is prohibited in Islam.” What is more Bitcoin may be more Halal than modern fiat money.papa johns bitcoinMatthew puts it quite clearly as he remarks, “Bitcoin is more halal than any currency in wide circulation today but probably still falls short of the strict and narrow definition of money in Islam.bitcoin mining software ipadModern sovereign currencies are based on debt with usury - this is strictly prohibited in Islam.Therefore, all modern money is not halal.Bitcoin, on the other hand, is not based on debt - it's based on a proof of work - and this is at least not haram (impermissible).” In understanding how Sharia looks at money, we are told by Matthew that there is a concept of Gharar (uncertainty) and contracts shouldn’t be unnecessarily uncertain.

While Bitcoin was rather volatile in the past, there is stability now seen in Bitcoin over the last few years.There are also possibilities in Islamic Banking that may work in favor of Bitcoin as well.In the case of Bitcoin, there are two benefits that are clearly visible.If Bitcoin is indeed more halal and fiat currencies are haram due to the way they originate, then creating settlement systems in cryptocurrencies like Bitcoin could make a great deal of sense.Then there is also the case of microfinance, a field in which Matthew’s company works.He thinks here the possibilities are more realistic, “I think the immediate opportunities lie in micro - microfinance and micro-takeful, for example.I also see huge potential in the use of smart contracts for cross-border crowdfunding and also Islamic modes of financing, such as mudaraba/musharakah (profit sharing) and muraba.I think there's also an interesting angle for micro-takeful (sharia-compliant insurance) to use crypto.” An interesting question is whether Bitcoin is money according to Islam.

Islam supports intrinsic commodities that can be used as currency.Paper or electronic money can also be used but they should be backed by an intrinsic commodity.So is Bitcoin money then?Matthew says No, “Historically, though, Islam has only recognized commodities of intrinsic value as money including things like gold (Dinar), silver (Dirham); rice, dates, wheat, barley and salt.In a strict interpretation of what qualifies as money, Bitcoin probably misses the mark.”Is money is money is money?While this appears like a troll-like, joke question, the answer is a bit more complex than that.Religion can play a big part in the governance of financial systems.Islam in particular has very clear guidelines based on Islamic principles.As Bitcoin enters mainstream adoption across the globe, one begs the question: Is Bitcoin complementary with Islamic banking and finance?Islam requires any currency to hold intrinsic value before it can be considered permissible.In other words, money that is created out of thin air is not (halal) money, because it is not backed up by any commodity of actual value.

In case you are new to the financial sector, know this: it is common, a standard practice, even, for financial institutions to create money without intrinsic value.In order to decide whether bitcoin holds intrinsic value, one must look at its qualities in comparison to other types of commodities which Islam permits.Two great examples are gold and silver.During the course of history, these precious metals have been used as currencies, in the form of the gold dinar and the silver dirham.Some countries around the world still accept it as legal tender.While bitcoin can only exist electronically, it shares a lot of qualities with gold and silver.Both are mined, scarce, value dictated by supply and demand, and can be used as currency on its own.This handy infographic illustrated this point.Can you call bitcoin ‘money’?Well, bitcoin is used as a medium of exchange - you can use it to pay for products and services.Bitcoin is also an economic standard and measurement of value - the price fluctuates based on market supply and demand.

For all intents and purposes, bitcoin is certainly used as money.However, Mohammad Mahmoud Ibrahim Tayel argued that bitcoin lacks one quality that money should have - public confidence, as evidenced in its volatile nature.In his short thesis for the Central European University entitled ‘Can Bitcoin be Self-Regulatory Legal Tender: A Comparative Analysis of United States, European Union, and Islamic Legal System’, Tayel said: “If we assumed that Bitcoin is analogous to the gold and its precise cause is its moneyness, then definitely Bitcoin is not eligible to resemble gold/silver in cyberspace on basis of a mere limitation or deflationary nature, especially that these two features have not established the precise cause which is the public confidence, but rather created an injury for the holder and the users alike due to high volatility” This is similar to the opinion of the Malaysian fatwa (religious opinion) council, adding that bitcoin is not suitable to be used as currency because there is an element of extreme speculation, and lack of authoritative body.

Considering that Malaysia is one of the global leaders of Islamic finance, and serves as an authoritative body in providing Islamic guidelines in Malaysia, this view cannot be easily dismissed.Professor Dr. Monzer Kahf, an expert in Islamic finance and economics in Qatar Faculty of Islamic Studies also released a fatwa citing low confidence and high chance of manipulation in the open market (unclear by what he means by this) make bitcoin/cryptocurrencies unsuitable to serve as currency.It should be noted, however, that both these statements were released in 2014 (April and June, respectively) - right after bitcoin price decreased into half its value within a matter of months.Significantly, both of these fatwas did not outright say bitcoin is impermissible.One can theorise that as bitcoin volatility slows down and more accountability bodies are established (especially to address fraud cases), not much else can make bitcoin ‘un-Islamic’, per se.It would be interesting to get newer updates from Islamic religious scholars on bitcoin as currency, as it gathers more public confidence, helped in part by the maturing of blockchain-based technology in the financial sector.

Islamic banking and finance must follow the principles of Islamic law.Two of the main principles are: the collection of interest (riba’) is forbidden, and loans must be based on profit/loss sharing.Charles W. Evans analyzed virtual currencies with the requirements of Islamic Banking and Finance in his paper, published in the Journal of Islamic Banking and Finance.In the abstract, he wrote: “While intended as a narrow financial and economic analysis, and not as an in-depth analysis of the subtleties and nuances of Shari'a as they relate to banking and finance, it shows that a BMS (blockchain management systems) can conform with the prohibition of riba (usury) and incorporate the principles of maslaha (social benefits of positive externalities) and mutual risk-sharing (as opposed to risk-shifting).It concludes that Bitcoin or a similar system might be a more appropriate medium of exchange in Islamic Banking and Finance than riba-backed central bank fiat currency, especially among the unbanked and in small-scale cross-border trade.” Evans further compared bitcoin to fiat currency and argued that bitcoin is a better alternative, as it is free of riba’ and value discounting, enters the circulation at a predictable rate (thus preventing hyperinflation), and can be expected to enable transactions for goods and services (ie.

serve as money, unlike fiat money which can sometimes - though rarely - be declared invalid based on the whims of a leader.Case in point: General Ne Win, who demonetized the Myanmar currency… twice).So far, Bitcoin application in Islamic banking and finance is very limited - only one such example can be found.In 2015, Matthew J. Martin launched Blossom Finance, a microfinance institution based in Indonesia that used the principle of Mudharabah, or Syariah-compatible financing system.Based on the above reviews of academic papers, Bitcoin is not incompatible in Islam.Bitcoin can conform to principles of Islamic finance, particularly being free from the influence of riba’ (interest), incorporates the principles of mashala (social benefits of positive externalities), and mudharabah (mutual risk-sharing).In terms of bitcoin’s legal status as ‘money’ in Islam, religious scholars did not declare it as impermissible, but mainly cautioned against its volatile nature.If volatility is out of the picture, one may make the informed opinion that bitcoin is halal as legal tender.