Last year, Bitcoin stormed into global attention when it suddenly appreciated to nearly $20,000. But soon it came down as sharply. Now that high fluctuation in Bitcoin price has flagged concerns over speculative risks, especially when it is backed by no real asset, governments too have started cracking down on cryptocurrencies. A few days ago Reserve Bank of India barred banks from dealing in cryptocurrencies.
Are cryptocurrencies just a risky fad that will peter out after investors get wiser? Just when it seemed so, cryptocurrencies may get a strong saviour: the Shariah. A new version of cryptocurrencies is gaining acceptance among Muslims, which can rescue the digital currency from vanishing into oblivion — gold-backed, Shariah-compliant cryptocurrencies.
Shariah, the religious and social code for Muslims, forbids speculative trading. However, a few companies have find a way to get around this problem. They are launching gold-backed cryptocurrencies which will have less speculative risk than the usual cryptocurrencies.
OneGram, a Dubai-based start-up founded last year, is issuing a gold-backed cryptocurrency. As the name suggests, each OneGram cryptocurrency unit is backed by a gram of physical gold stored in a vault. This underlying physical asset limits risks of speculation. “Gold was among the first forms of money in Islamic societies so this is appropriate,” Ibrahim Mohammed, the Briton who founded the firm with other investors, told Reuters. ““We are trying to prove rules and regulations from sharia are fully compatible with digital blockchain technology.”
However, National sharia authorities in the Gulf countries have not ruled on whether cryptocurrencies are permissible in Islam.
The Saudi Arabian and UAE central banks warned citizens about risks of cryptocurrencies. So there is no unanimity on whether a cryptocurrency, even if backed with gold, is Sharia-compliant.
California-based academic Monzer Kahf, a prominent author of Islamic finance textbooks was one of the earliest experts to consider cryptocurrencies a legitimate medium of exchange, says the report. Islamic jurists in South Africa too have ruled in favour of cryptocurrencies.
However, there is no consensus among interpreters of Islamic jurisprudence over the acceptability of cryptocurrencies. In October last year, the Durban-based Darul Ihsan Centre refrained from endorsing them, citing concern over potential pyramid schemes, says the report.
Some scholars in Turkey, India and Britain have labelled them impermissible; Egypt’s Grand Mufti declared in January they should not be traded.
“Overall, more evidence is needed to reach a consensus, at least until higher bodies pronounce themselves on the issue, such as the Islamic Fiqh Academy,” Ziyaad Mahomed of HSBC Amanah in Malaysia, who chairs the bank’s Shariah committee which oversees Islamic transactions, told Reuters.
If cryptocurrencies gain favour with Muslim investors in the Gulf and Southeast Asia, it would give digital currencies a solid support to thrive in the long term.