The rise of digital assets has brought about different methods through which individuals can make investments, pay, and access various financial services. The continued growth of cryptocurrencies has led to a corresponding increase in interest in blockchain projects that meet the existing ethical and religious financial standards.
Shariah-compliant crypto has arisen as one such project where digital assets and services provided through blockchain technology meet the requirements of Islamic finance.
Shariah-compliant cryptos aim to do nothing that is forbidden by the Shariah and focus only on usability. With more and more blockchain projects undergoing independent audits, Shariah-compatible cryptos continue to evolve as an independent category of digital assets.
Different from normal financial products, which can be based on interest-bearing loans and speculation, Shariah-compliant cryptocurrency is based on transparency, practicality, and integrity.
A number of blockchain projects have come up with frameworks that incorporate asset-backed features, productivity, and governance systems that have been examined by Islamic scholars. This has resulted in increased popularity of halal cryptocurrencies among the Islamic finance industry, a market worth $2 trillion across the globe.
Principles of Shariah-Compliant Cryptocurrency
Islamic finance operates under certain established principles that will help to establish if a cryptocurrency and blockchain project qualifies to be regarded as halal.
The main principles are as follows:
- Avoidance of riba: Investment instruments must not create or rely on returns based on interest.
- Minimization of gharar and maysir: Uncertainty, speculation, and investments in gambling activities are not seen as compliant.
- Legal business operations: Investments connected with activities that are strictly prohibited (such as gambling or other prohibited sectors) cannot be Shariah compliant.
These principles are used for designing, regulating, and structuring the financial model of blockchain projects aiming at being Shariah-compliant.
Shariah-Compliant Cryptocurrency Evaluation Process
A blockchain project first undergoes a detailed analysis conducted by a group of experts in Islam before it is certified as Shariah-compliant. The evaluation process involves a number of factors concerning the project, instead of just the coin.
Some of the criteria considered include:
- The purpose/utility of the project: The blockchain must offer useful or socially valuable services rather than being mainly used as an investment opportunity.
- Financial Architecture: Models on revenue generation, models on governance, tokenomics, and smart contracts will be analyzed to make sure that these fulfill the requirements of Islamic finance.
- Compliance: The certification may not be forever since there will be further evaluations when new services/products are introduced into the ecosystem.
These steps ensure that investors receive an independent evaluation on whether the project is still compliant with the Shariah standards.
Shariah-Compliant Crypto Projects
Here are some examples of blockchain projects that have built digital assets and services, which have been noted for their attempts to comply with the principles of Islamic finance.
| Project | Main Attribute | Compliance |
| OneGram | Crypto based on gold | resources of physical goods (gold) |
| Islamic Coin (ISLM) | based on the Haqq blockchain | encourages charitable projects using the Evergreen DAO; excludes non-compliant financial instruments |
| FICE (Fasset Islamic Crypto Exchange) | licensed crypto exchange in Bahrain | trades only Shariah-compliant virtual goods using ethical screening criteria |
OneGram came up with a system where all tokens will be backed by not less than one gram of real gold kept as a reserve. This is meant to create an asset-backed system with reduced speculation in price.
The Islamic Coin uses the Haqq Blockchain and features the Evergreen DAO, where part of all transactions done through ISLM will be channeled to social and environmental projects. The ecosystem also restricts financial products considered inconsistent with Shariah law.
Source: Binance
FICE acts as an exchange in Bahrain after licensing from the central bank of the nation. The system uses religious and ethical criteria when listing the digital currencies listed on its platform.
Why Shariah-Compliant Crypto Continues to Expand
The development of Shariah-compliant cryptocurrencies has been parallel to the growth of blockchain technology and the rising interest in ethical investing products.
There are various advancements that help promote the growth of this market. They include:
- Increased demand from the Muslim investors for cryptocurrencies that conform to the principles of Shariah finance.
- Rising interest among Islamic finance institutions in the use of blockchain technology for payment systems, trade finance, digital identities, and tokenization of asset-backed assets.
- Regulatory framework creation for halal digital assets in countries such as Malaysia, Indonesia, UAE, and Saudi Arabia.
- Such trends arise along with rising consumer interest in investment instruments that comply with Islamic financing rules.
Challenges Related to Shariah-Compliant Crypto
While the market is still evolving, there are a number of issues left unsolved. There is no certainty that theologians of Islam will deliver similar judgments on certain crypto assets or blockchains. Bitcoin, Ethereum, staking services, and DeFi protocols may be evaluated differently by various advisory boards.
The innovation speed on the blockchain also needs regular assessment. As more governance structures, finance or dApps become available for use, the compliance assessments may need updating.
Educating the investors is yet another important point. Not all halal projects have passed the formal review by the Shariah advisory board, which is why verification becomes a crucial step in the investment process.
The Future of Shariah-Compliant Cryptocurrency
Shariah-compliant cryptocurrency is still progressing along with the general cryptocurrency industry. There have been increasing developments by blockchain firms on creating financial products that promote transparency, ethics, practicality, and compliance with Islamic finance rules.
Islamic decentralized finance, tokenization of real-world assets, blockchain technology, and Shariah-compliant exchanges remain among the ongoing developments within the Shariah-compliant cryptocurrency industry.
With more and more projects getting certified and more regulations being set up in multiple countries, Shariah-compliant cryptocurrency has firmly established itself in the cryptocurrency industry.
Conclusion
Islamic finance-compatible cryptocurrencies comprise one category of digital assets in the market based on the tenets of Islamic finance.
Companies interested in ensuring their compliance conduct assessments in relation to their governance, usage, financial framework, and operations against the existing standards of Shariah. With the increasing use of blockchain technology and the growing number of digital asset services being certified, the market evolves further.
Frequently Asked Questions
What does Shariah-compliant crypto mean?
A Shariah-compliant cryptocurrency is one which conforms to the principles of Islamic financing and is audited as such.
What should be the criteria for a cryptocurrency to be halal?
Shariah compliance of a project is checked by independent Shariah advisory boards in the context of its functioning, governance, financing, token economics, and business model.
Is every cryptocurrency Shariah-compliant?
Not always. Any project associated with interest-based lending, gambling, highly speculative behavior, and restricted areas does not qualify to be Shariah-compliant.
