Role of Islamic Finance in digital currency revolution.

Byline: AHSAN NISAR

When a financial product uses the word Islamic in its name, it must be subject to critical interrogation needed to sort the wheat from the chaff. Of late, there are a lot of financial products in the market that claim to be Islamic but people have no other option than to rely on Shariah Advisory Board for the same. One such area is cryptocurrencies where scholars are divided into whether they are Halal or Haram. There are some principles that consider digital currencies halal while others consider it haram. So far it has been demonstrated that there are few perspectives and highlights of cryptocurrencies that are allowed to be halal. Based on all the available information it could be presumed that:

1. Trading in digital currencies is free of interest rate (without riba) which is considered Islamic finance (halal), yet it's not physical material as Money (maal) can address, accordingly, it's not decent.

2. Islamic shari'ah does not agree with virtual coins as a currency employed in deals and as such considers them as fake currency.

3. Most countries with the exception of Germany and Japan declined to apply digital coins as a currency since they are not authorized by any formal association in the world, perhaps in the future, under central banks responsibility, they may be allowed (halal) to be used in Islamic banks.

4. It has opened the lobby for money laundering or terrorist financing, where money changes hands without knowing who is the actual beneficial holder.

5. It promotes (ghurar); the greed / craving of the dealer to make a quick profit, which gives the impression of gambling and that is expressly banned (haram) in Islamic Shari'ah.

6. Also, cryptocurrencies are not backed by any asset so in view of no security or guarantee, it has high volatility and hazards.

The reality of digital currency trading in Islamic countries can be summarized as; Bahrain, UAE and Sudan are the countries that allow digital currency to be traded legally and these countries; Egypt, Saudi Arabia, Jordan, Syrian Arab Republic, Oman and Palestine are the countries that have legally prohibited digital currencies but allow the trading of digital currencies legally, but Sharia prohibits the circulation of these currencies (prohibition is suspended until further study, which may indicate the possibility of its approval later).

Qatar, Algeria, Morocco, Kuwait and Libya are the countries that legally prohibit the circulation of digital currencies and...