Differences between Conventional Cryptocurrencies and Shariah-Compliant Cryptocurrencies

Cryptocurrency is a relatively new technology that has the potential to disrupt the long-established and trusted financial transaction structure. Cryptocurrency has the potential to transform the digital trading market by enabling free-flowing transactions without the need for banking fees. Users may share digital values without the involvement of a third party when they use cryptocurrency. Cryptocurrency is founded on the principle of cracking an encryption algorithm to produce a limited number of unique hashes, as well as a computer network that verifies transactions, allowing users to exchange hashes as though they were exchanging physical currency.

In terms of financial transactions, Islam has created its own set of rules and regulations. The issue of money transactions is that Islam sees money solely as a medium of trade, so the demand for money is solely for transactional purposes, with no notion of money demand for speculation. Apart from that, there should be no practices in Islam’s financial system that include gambling (maysir), interest (riba), or confusion (gharar). Mayer, specifical gambling, is described as betting on valuables such as money at an event with unknown or uncertain outcomes. Riba is more accurately described as al-ziyadah or an improvement in profit in a transaction without incurring a loss if the transaction fails. Gharar refers to the possibility of fraud and the uncertainty of the risks involved in a transaction. These three concepts of Islamic rules can be related to the existing cryptocurrency system, either used as a store of value (investment) or as a medium of exchange.

Given the rapid growth of the global halal industry, the Islamic world’s demand cannot be overlooked. Furthermore, Islamic finance has surpassed USD 162 trillion in global commercial banking assets.

Combining cutting-edge technological innovations like blockchain with Islam’s glorious traditions might seem odd and out of place. However, the rapid and creative financial changes taking place in the Islamic world, on the other hand, are far from anachronistic. In recent years, the Islamic financial market has experienced strong annual growth of about 10% to 14%. According to Thomson Reuters, the Islamic economy will be worth about $1 trillion in 2030, and the Islamic financial sector will be worth $ 3,8 trillion in 2024. Regardless of the fact that the Islamic finance industry’s growth is expected to slow due to the recent Covid-19 outbreak, the industry’s assets are still growing. By 2024, it is expected to have risen to the US $ 3.69 trillion. Blockchain is a technology that can help with financial governance by storing data, increasing confidence, reducing fraud, and increasing accountability in the digital economy. In Islam, sacredness is expressed by values such as trust, integrity, and openness.

Some of the studies mostly examine cryptocurrencies from a Shariah perspective. The concept of Shariah cryptocurrency as a Sharia-compliant cryptocurrency option can be used as an alternative for Shariah adherents and the future of Islamic economics. Cryptocurrency itself will overcome several problems that the existing financial system cannot overcome. The potential for Shariah-compliant cryptocurrency technology can be easily used to build Islamic economic products and positively affect the global economy, especially the future of the Islamic economy.

The concept of money in Islam is very similar to the conventional definition of money, with very few exceptions. In Islamic economics, the concept of money is evident and firm that money is money, not capital. At the same time, money in a conventional economic perspective is interpreted in terms of interchangeability, namely money as money and capital. There is no money demand for betting in Islamic philosophy because speculation is forbidden. Compared to the traditional scheme, which rewards land owners with interest, Islam makes the property the subject of zakat. Since money belongs to the nation, keeping it under one’s pillow (unproductive) is illegal because it limits the amount of money in circulation.

In Islam, money is seen as a means of trade rather than a commodity. As a result, money demand motivates to satisfy transactional needs (money demand for transactions), not to speculate. Islam also highly encourages the use of currency in trade, as shown by the hadith recounted by Ata bin Yasar, Abu Said, and Abu Hurairah, as well as Abu Said al-Khudri, who clarified that the Prophet Muhammad disapproved of barter deals, so it is preferable to use money. He seems to prohibit such transactions because they contain a component of usury. Along with the progress of the times, the form of payment with money today leads to something that is more practical and has no form at all, only in the form of a digital code that is on a server, chip card, or someone’s smartphone which is called electronic money or digital currency. According to its type, digital payments consist of two types: electronic or digital money, often used in computer and smartphone-based applications. An entity or corporation controls, regulates and manages this kind of virtual currency. Second, a cryptocurrency is a virtual currency that utilizes cryptographic technologies which encrypt data for each transaction utilizing a unique cryptographic algorithm.

Difference between Conventional Cryptocurrency and Shariah-Compliant Cryptocurrency

Even though cryptocurrencies are rising rapidly in today’s socio-economic world, there are few alternatives to Shariah cryptocurrency, although some have implemented the Shariah cryptocurrency model. The Shariah cryptocurrency paradigm must be nurtured following al-Maqasid al-spirit. Shari’ah’s (divine purpose). In addition, modern, structured Sharia policies and systems must be used to control and direct the Shariah cryptocurrency model. A Sharia board must closely supervise it. All of its operations must be screened by a Sharia audit to ensure that all activities and functions comply with Sharia principles. Meanwhile, advisory bodies would play a significant role in advising management about aligning their practices with Shariah values and religious and ethical norms. Furthermore, Shariah cryptocurrency must be founded on Shariah principles and free of the factor of uncertainty (gharar) in order for the receiver, consumer, technology, and operation to be clear and free of uncertainty in this model (gharar). Shariah-based instruments can promote operations and transactions in the Shariah cryptocurrency model. Users’ investments, for example, are based on al-Mudharabah (partnership) or al-Musharakah (partnership) principles, in which users share profits with other beneficiaries or users by trading activities. The recipient is charged a service fee based on al-Jualah (reward), al-Wakalah (agency), or al-Ujrah concepts (charge). Meanwhile, the al-Bay wa al-Shira concept governs transactions on the blockchain network (buying and selling). Zakat would be a mandatory tax for the Shariah cryptocurrency model (alms). Furthermore, based on the concept of al-Tabarruat, voluntary income segregation for humanitarian purposes should be given (amal). The model must follow standard legal standards, ethical norms, and Shariah-compliant operating frameworks to ensure its long-term viability.

Conventional Cryptocurrency and Shariah-Compliant Cryptocurrency

The most pressing issue in the Islamic financial structure of Muslim societies is the compatibility of cryptocurrencies with Islamic sharia law. One of the things that need to be considered is related to every aspect of business, operations, and management that must comply with Shariah principles, ethical standards, and local laws and policies, in addition to regulations that exist in cyberspace.

When cryptocurrency complies with Sharia law, it will be more widely accepted, particularly in Muslim populations and countries. The potential of cryptocurrency technology can be easily used to create Islamic economic products and have a positive impact on the global economy, particularly in the context of welcoming a modern Islamic economic order that is beneficial to all parties involved and realizing a better future for the Islamic economic community.

IslamicCoin is the first project to provide the community with powerful financial technology that allows for seamless transactions, support innovation and charity. The project is 100% compliant with Shariah law and benefits the community. Developers focus on sustainable development and use technology and innovation to ensure financial sustainability.

"At the heart of Islamic finance is the prohibition on charging interest. Islamic finance has always been focused on not shifting most of the risks to one side of the financial relationship. In Islamic finance, balance and transparency of transactions should be observed, which can negatively affect our society," says Mohammed AlKaff AlHashmi, one of the founders of IslamicCoin.

IslamicCoin targets 1.1 billion Muslims using the Internet. The project creates convenient tools designed for users who have never been owners of cryptocurrencies. The mission of the project is to provide the international community of followers of Islam with a reliable and promising financial instrument that allows for independent financial interaction, support innovation and philanthropy.

Using the power of the Muslim community, IsalmicCoin can become one of the most important and valuable crypto assets. If 3-4% of the Muslim online community own an Islamic coin, it will become a bitcoin-scale crypto asset, bringing its holders a trillion dollars and $100 billion for the Evergreen DAO.