Abstract

The study aims to elaborate on the Shari’ah issues regarding cryptocurrencies. The research found that overall Shari’ah challenges in studying this unprecedent issue can be confined to Bitcoin since it is the first cryptocurrency with its own protocol and laws, and the later versions of the cryptocurrency started using the protocol of Bitcoin. Bitcoin was distinguished being the only cryptocurrency that is classified as decentralized, whereas the subsequent versions of the currencies, which were introduced as an alternative to Bitcoin, such as Ethereum, were centralized by their issuer. Also, the tokens are merely representing the assets which were collected through it. The overall Shari'ah issues were summarized in terms of its asset and monetary consideration, impact of price fluctuations, decentralization, anonymity, and the mechanism of mining which PoW (Proof-of-Work) and PoS (Proof-of-Stake). This study has concluded on the Shari’ ah permissibility of the PoW system which is used in Bitcoin, and PoS system which is used in Ethereum. The contract is based on Ju’alah contract. As a principle, the study could not conclude the Shari’ah non-permissibility of exchanging, trading or investing in Bitcoin, and similar cryptocurrencies. These cryptocurrencies are subjected to all the guidelines related to exchange of currencies (sarf) and rulings of Riba buyu’ (sale on credit) and Riba duyun (interest on debt). Also, it will be subjected to monetary Zakat rulings. However, dealing with mining groups, electronic platforms, as well as investing in these currencies through various websites, may contain executing agreements and contracts that contain conditions not compliant to Shari’ah. These agreements should be examined in the light of the provisions of the Islamic law. Also, users should be cautious against falling into the net of fraudsters on the Internet. The research recommends to hold-up investing in these recent currencies because of the rapid volatility and to avoid exposing the wealth to high risk.

Highlights

  • The study aims to elaborate on the Shari’ah issues regarding cryptocurrencies

  • The research found that overall Shari’ah challenges in studying this unprecedent issue can be confined to Bitcoin since it is the first cryptocurrency with its own protocol and laws, and the later versions of the cryptocurrency started using the protocol of Bitcoin

  • Bitcoin was distinguished being the only cryptocurrency that is classified as decentralized, whereas the subsequent versions of the currencies, which were introduced as an alternative to Bitcoin, such as Ethereum, were centralized by their issuer

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Summary

Introduction

The study aims to elaborate on the Shari’ah issues regarding cryptocurrencies. The research found that overall Shari’ah challenges in studying this unprecedent issue can be confined to Bitcoin since it is the first cryptocurrency with its own protocol and laws, and the later versions of the cryptocurrency started using the protocol of Bitcoin.

Results
Conclusion
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