Bitcoin

Research Paper Concludes Bitcoin “Generally Permissible” Under Shariah Law

By April 26, 2018 No Comments

Bitcoin and other cryptocurrencies have caught the attention of the world because they vary from the traditional financial systems we use today. A subject of specific interest among the general public is whether or not bitcoin complies with the Shariah Law which – the religious law that forms part of Islamic tradition. An Indonesian fintech company called Blossom Finance has published a research paper which declares that “bitcoin qualifies as Islamic money, except where it is banned by a local government.”
Is Bitcoin compliant with Shariah Law?
Ever since the creation of bitcoin, curiosity has built up regarding the compatibility of cryptocurrencies with Shariah-compliant finance. Islamic banking has strict laws that govern the processes of profit sharing, loss bearing, leasing and safekeeping among others. For example, Shariah Law clearly prohibits usury or ‘ribs’ which is to collect interest paid on loads. Cryptocurrency has come into question regarding whether or not it is in compliance with Islamic banking. As recently as December 2017, a Muslim cleric announced that owning Bitcoin is compatible with Islamic Finance. However, other religious figures have denounced this opinion and Egypt’s top cleric issued a fatawah against Bitcoin.
22 Page Study published by Blossom Finance on Bitcoin and Islamic Finance
Matthew J. Martin is the founder of Blossom Finance, a startup that uses cryptocurrency to help Muslims with Islamic Financial Law. He and Mufti Muhammed Abu Bakar, Blossom’s internal Shariah advisor and compliance officer, have published a study which declares that Bitcoin does qualify as Islamic money unless a local government bans the usage of digital currencies.
Martin says that in spite of the interest generated by cryptocurrency all across the world, there is significant confusion among Muslims who make up close to 25% of the world’s population.
“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,” explains the CEO of Blossom Finance. “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.”
National Law Supersedes Shariah
Martin states that bitcoin qualifies as Islamic money because being a “customary money” but national law supersedes Shariah permissibility.
The study’s author says that bitcoin is recognised as a legal currency in Germany and therefore qualifies as Islamic money in that country. However, Indonesia published guidelines in January declaring that all payments made within their country must be in Indonesian Rupiah.
“However, this clarification should not be seen as an anti-bitcoin stance — the same legal tender laws in Indonesia also forbid gold, silver, US Dollars, and Euros — It remains legal to buy and sell Bitcoin in Indonesia,” Blossom Finance details.
“Bitcoin is permissible in principal as bitcoin is treated as valuable by market price on global exchanges and it is accepted for payment at a wide variety of merchants,” the study states.
“Moreover, many private individuals accept bitcoin as a medium of exchange in their private transactions.”
Bitcoin is compatible with Shariah Law but ICOs are “uncertain and not advised”
The founder of Blossom reiterates that the technology of bitcoin is in line with the Shariah goal of minimising uncertainty.
“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.”
The study researches the clarity of Initial Coin Offerings (ICOs) and the status of their compatibility with Shariah Law. Presently Blossom Finance says “ICOs are highly uncertain, and not advised.” This is as a result of the fact that some of the most important goals of Shariah are the preservation of wealth and understanding that people should invest only what they are willing to lose.
“ICOs, or initial coin offerings, often lack clarity on: a) what are investors actually buying, and b) what are the investors’ rights,” the report concludes.
The full research paper which discusses bitcoin and Islamic finance compatibility in great detail can be found here.

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