Paper Title: Examining the Adoptability of Crypto currency in the Islamic Financial System: Perspectives from Shariah Scholars

Author: Samina Naz and Naila Nazir

Publisher: Journal of King Abdul Aziz University: Islamic Economics, 37(2), 75–98.

The paper looks at an important issue of whether the crypto currencies are Shariah compliant or not. So far, there is difference of opinion among scholars and many scholars also are silent on this due to lack of understanding about the complexities in the production process of crypto currencies and what derives their values.

Some scholars highlight the potential for anarchy, societal chaos, and lack of accountability in a decentralized proliferation of crypto currencies. Some scholars who think that crypto currencies are useful highlight the aspects of transparency, security, lower transaction costs, resistance to counterfeiting, limited supply, and potential utility in crisis-prone nations.

The decentralized nature of bit coin allows for the inclusion of unbanked individuals into the global economy, yet the same lack of oversight raises concerns about its long-term stability and compliance with Islamic principles.

Majority of scholars hold a view that a currency‟s permissibility is not invalidated if its value diminishes. This perspective is founded on the premise that conventional forms of currency are also subject to fluctuations in value. Financial securities like Halal stocks also go through swings in prices due to market and economic factors.

Scholars answer the apprehension regarding security and theft by drawing a parallel to traditional forms of wealth like bank notes and gold, which are also prone to theft.

However, the fundamental point is that these conventional forms of money are underwritten and guaranteed by a government, lending them credibility and legitimacy. Thus, the fiat currency is still considered valid since it is a legal currency issued and regulated by government or central bank of the government.

The scholars emphasize that a currency must be backed by a central authority, especially if it lacks intrinsic value or asset backing, to achieve Maqasid al-Shariah. This backing can mitigate societal risks and fraud. Further, the currency must serve as a store of value to align with the objectives of Shariah. Nonetheless, the volatility of crypto currency value does not violate Maqasid al-Shariah or embody the element of Maysir (gambling).

Limited acceptability and vulnerability to hacking attacks are also not seen as grounds for declaring crypto currency impermissible in Shariah. The potential for a fully computerized currency was also seen as permissible, provided it is supported by a central authority.

The two points where crypto currencies become contentious is that they are not issued and regulated by a central authority and they also do not have any intrinsic value or asset backing. The second point is also not present in the modern fiat currencies, but the first point is a key for legal and wide acceptance.