Is cryptocurrency permissible in the world of Islamic finance?
Cryptocurrency and Charity
xWIN Business Development holds daily meetings with projects worldwide. Over the past few months, we’ve engaged with 200+ projects, exploring business development for positive global impact.
Recently, we met with the MRHB project, an Islamic finance initiative. The individuals involved were impressive. If interested, details can be found at https://mrhb.network/. Both parties emphasize mutual enrichment and a spirit of service. xWIN is actively promoting cryptocurrency-based charity initiatives.
Islamic finance seeks to align financial activities with Islamic teachings. Core principles include the prohibition of interest (riba) and the elimination of uncertainty and gambling elements. This promotes risk-sharing and social justice. Scholars within Islam have differing views on cryptocurrencies. Some assert that cryptocurrencies’ trading and holding are permissible, treating them similarly to traditional currencies and commodities.
1. Lending Considerations:
Islamic finance prohibits interest. Financial transactions involve profit and loss sharing, replacing interest with risk and reward sharing. Notably, tangible transactions (e.g., Murabaha, Ijarah) form the basis of financial schemes.
“Mudaraba” involves merchants buying goods, marking up prices, and reselling to buyers. In Islamic finance, capital providers act as merchants, receiving buyer payments over time.
“Ijarah” entails leasing assets. Capital providers purchase necessary assets, setting purchase prices, profits, lease periods, and lease fees, then leasing to capital recipients.
Applying these principles to cryptocurrency transactions is achievable through blockchain technology.
2. Blockchain for Risk and Profit Sharing:
Islamic finance promotes risk and profit sharing between capital providers (investors) and entrepreneurs (companies or individuals). Investment and financing agreements involve sharing profits and losses. The concept applies to investments, where capital providers fund entrepreneurs and share predetermined profits.
“Mudaraba” is employed by Islamic financial institutions funding businesses or by depositors supporting banks.
Applying this to emerging blockchain concepts like NFTs and STOs is also possible.
3. Cryptocurrency Is Not Gambling:
Islamic finance prioritizes eliminating uncertainty and gambling elements. Transactions based on unpredictable risks are not permissible.
In contrast, cryptocurrency’s price volatility introduces uncertainty, potentially involving gambling-like aspects. However, using stablecoins or fund management could mitigate this concern.
In conclusion, there is no established consensus on Islamic views regarding cryptocurrency. Adhering to Islamic principles while considering cryptocurrency’s nature and market features is recommended. Individual believers should make cryptocurrency trading decisions based on their faith and values.
