Wednesday, September 30, 2020

Dubai Company Creates Sharia-Compliant Cryptocurrency

A startup in Dubai called OneGram has created a Bitcoin-style cryptocurrency that ostensibly complies with sharia law, making it an acceptable alternative for devout Muslims.

This could be a more significant development than most other competitors to Bitcoin because, while Muslim buyers have displayed great interest in cryptocurrency, there are looming fears they will be outlawed in Muslim nations as a violation of sharia’s strict prohibitions against usury.

“Sharia principles, in addition to banning interest payments, emphasize real economic activity based on physical assets and frown on pure monetary speculation,” Reuters explains. “That has triggered debate among Islamic scholars over whether cryptocurrencies are religiously permissible. Cryptocurrency companies are seeking to sway the debate by launching instruments based on physical assets and certified as valid by Islamic advisors.”

OneGram does this, as its name implies, by using at least one gram of physical gold to back the value of each crypto unit.

“Gold was among the first forms of money in Islamic societies so this is appropriate,” company founder Ibrahim Mohammed notes. “We are trying to prove rules and regulations from sharia are fully compatible with digital blockchain technology.”

Reuters mentions a few other efforts to create sharia-compliant cryptocurrencies, including HelloGold of Malaysia, which employs an approach similar to OneGram’s with additional controls meant to control the volatility of the currency, and United Arab Emirates-based Halal Chain, which uses other physical goods endorsed by Islamic law to support the value of its currency.

The Economic Times of India — where cryptocurrencies face increasing regulatory disfavor for reasons that have nothing to do with Islam — notes that while several Islamic courts have ruled cryptocurrencies are acceptable, others have ruled against them, and no less an authority than the Grand Mufti of Egypt has said crypto trading should not be allowed. Some of those rulings applied specifically to Bitcoin rather than blockchain currencies in general.

Any number of Islamic courts in wealthy Muslim countries could conceivably order a ban on cryptocurrencies at any time, which generates investor interest in “safe” alternatives like OneGram. Saudi Arabia, the Emirates, Turkey, Indonesia, and Malaysia are often mentioned as countries of particular concern to speculators. Saudi Arabia’s Islamic Fiqh Academy is slated to begin serious discussions of the legality of cryptocurrency later this year.

Balanced against sharia concerns is the appetite for cryptocurrency and other religiously dubious financial instruments in the Muslim world, where Reuters notes only 20 to 30 percent of banking is strictly sharia-compliant. Some observers of the Muslim financial world who spoke to Reuters delicately noted that sharia scholars might not fully understand how cryptocurrency works yet, so they haven’t gotten around to issuing fatwas against it but that could change at any moment.

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