Crypto Credits
Regulation

Cryptocurrency: An Islamic Law Perspective

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Tuesday, April 06, 2021 / 09.00AM / Bukola
Akinyele
-Yisau for WebTV /Header Image Credit: Coded Wap


Recently Professor Abdulrazaq Alaro, Head Department
of Islamic Law, University of Ilorin, Kwara State, gave a presentation on “Cryptocurrency: An 
Islamic Law Perspective” at a webinar organized by
Forerunner Welfare Foundation in conjunction with Muslims Students Society of
Nigeria (MSSN) Somolu Area Council.

 

Professor Alaro is a Member of, Financial
Regulation Advisory Council of Experts, Central Bank of Nigeria and
Member, Takaful Advisory Council, National Insurance Commission. 

 

He started his presentation from the evolution of
money. According to him, in the primitive era, there was no money but trade by
barter which means people exchanged commodities with one another in the market.
But that could not sustain a high volume of business or commercial
transactions. This according to him brought the invention of money as a medium
of exchange. In early human society, human beings exchanged commodity money in
the form of gold and silver. Also, gold and silver were used as currencies
during the time of Prophet Mohammad (SAW).  

 

The scholar noted that another type of money
evolution was “Fiat Money”.  He viewed fiat money as a currency that has
no intrinsic value. The currency gains acceptance based on the full faith and
credit of the issuing authority. 

 

“The money we have today is mere paper but it is
of value due to the acceptance from the authorities all over the world”.

 

He identified mathematics-based money (virtual
currencies) as another evolution of money that came about 12 to 13 years
ago. 

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Understanding the Breaking of A New
Currency Era

Cryptocurrencies according to Alaro are “virtual
currencies”. In 2014, The European Banking Authority (EBA) defined
virtual currency as “a digital representation of value that is neither issued
by a central bank or a public authority, nor necessarily attached to a fiat
currency, but is accepted by natural or legal persons as a means of payment and
can be transferred, store or traded electronically.”

 

In October 2016, the European Central Bank (ECB) referred to a cryptocurrency as a means of payment.  Cryptocurrencies
are digital or virtual currencies that are encrypted or secured using
cryptography. They are created, stored, and traded electronically.

 

There are hundreds of cryptocurrencies in the
world but the most popular among them is Bitcoin because Bitcoin was the first
cryptocurrency to be invented. As of today, the market capitalization of
Bitcoin is $1trn. Bitcoin is the biggest and the most traded digital
currency globally.

 

Features of Cryptocurrencies

  • They are digital- Fully electronic
  • Private-Not issued by any gov or
    constituted authority
  • Decentralized-No centralized issuing
    or regulating authority
  • No intrinsic value
  • No physical existence
  • Anonymous-it’s possible to send and
    receive cryptocurrencies without giving any personally identifying
    information 

Types of Cryptocurrencies

1.     
Alternative
cryptocurrency coins ( Altcoins)- is an alternative to Bitcoin

2.    
Tokens
–  representations of an asset or utility. 

Speaking on the historical development of
cryptocurrency, Prof. Alaro said Bitcoin was invented in 2008 and created by an
unknown person or group of persons using the name Satoshi Nakamoto. He described Bitcoin as a digital ledger of transactions, distributed and
duplicated across a network of computer systems.

 

He highlighted the following issues around Shariah
and Cryptocurrencies;

Shariah and
Cryptocurrencies

1.     
Trading
and investment in cryptocurrencies- There are two juristic opinions:

The first opinion by Islamic scholars is that
trading and investment in cryptocurrencies is Haram. This is mainly by
official Iftaa bodies, such as the official Shariah authority in
Egypt, Turkey, and Palestine.   He said a majority of people
declaring cryptocurrency as Haram represent official /constituted authorities
of government. 

Another opinion is that it is Halal (permissible)
to trade in cryptocurrency. These opinions come from respected jurists and not
from institutions. The opinion is held by scholars like Prof. Ali EI (Saudi
Arabia), Dr. Daud Bakar (Malaysia), Dr. Abdulbasari Mishal, IEF (USA), and
Mufti Abu Bakr (South Africa)

Alaro said the International Islamic Faith Academy (IIFA)
based in Jeddah, Saudi Arabia has not issued any guidance on
cryptocurrency. 

According to some Jurists, trading in crypto is Halal
because they are digital assets. As assets can be bought and sold depending
on the demand and supply conditions in any given market. On the part of those
who say cryptos are currencies, he stressed their point that cryptocurrencies
have all the features as it is a means of exchange, a unit of account, and a
store of value. 

 

Two Rules Governing Foreign Exchange
Market  in Shariah 

1.     
If one
will exchange currency of the same kind. For instance a dollar with a dollar
and a  Naira with a Naira. You can’t exchange an old note and request for
a new note, you can’t exchange bitcoin for bitcoin and expecting Interest. If
you exchange 100, you must receive 100 back with no interest. No Riba in
exchange contract

2.    
No
Riba/Interest in Loan /debt contract       

In his conclusion, he explained that it is Haram
(illegal) to trade in cryptocurrency as it has no intrinsic value, there is
high volatility culminating in excessive uncertainty and high risk that is akin
to gambling, no link to the real economy, and trading in cryptocurrencies is
just like a bubble that had the potential of bursting. 

Also, according to him, cryptos are used for
illicit activities, are plagued by ambiguity and anonymity, and
cryptocurrencies are not issued/regulated by any government or constituted Shariah
authority. 

 

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