With the hype surrounding bitcoin comes discussions whether or not it complies with the religious law that forms a part of Islamic tradition otherwise known as Shariah Law.
A microfinance firm based in Indonesia, Blossom Finance recently released a 22-page working paper that settles that as it concluded that “bitcoin qualifies as Islamic money, except where it is banned by a local government.”
Over the past few years, people have wondered if cryptocurrencies are compatible with Shariah-compliant finance. Islamic banking carries rules that apply to profit sharing, loss bearing, leasing, safekeeping, and more.
For instance, Shariah Law specifically restricts usury which is called “riba” or collecting interest paid on loans. Bitcoin and cryptocurrencies have come into into discussions over concerns whether or not they comply with Islamic banking.
In December of last year, a Muslim cleric announced that owning bitcoin was compatible with Islamic finance. However, other clerics have opposed this opinion and Egypt’s top Islamic cleric had issued a fatawa (religious edict) against bitcoin.
This week, Matthew J. Martin, the founder of the startup Blossom Finance that makes use of cryptocurrency to aid Muslims with Islamic financial law, and Blossom’s internal Shariah advisor and Shariah compliance officer, Mufti Muhammad Abu Bakar, released a study that settles that bitcoin does qualify as Islamic money, unless a local government forbids the use of digital currencies.
The research explains an in-depth analysis of the various legal opinions (fatawah) on the subject of Islamic banking and bitcoin.
Martin asserted that even though cryptocurrency interest continues to expand, there is a lot of misperceptions among Muslims who make up close to a quarter of the world’s population. Many individuals have asked if bitcoin and other cryptocurrencies comply with the set of rules followed by Muslims in accordance with the guidelines of the Quran.
“Contrary to popular myth, Shariah law is not a single set of rules; it’s is a scholarly field subject to differing interpretations and opinions on various matters,” Martin said.
“Several recent fatawah issued by prominent Muslim scholars offered incomplete or contradictory opinions on the topic. With all the confusion out there, we wanted to offer clear guidance supported by solid research that benefits both laypeople and practitioners of Islamic finance.”
“I’ve had so many people ask me ‘Is Bitcoin halal or haram?’, and the honest answer is ‘it depends’. Bitcoin is not just a currency, but it’s also a transaction and payment network. And blockchain itself is a whole category of technology with wide ranging applications.”
The 22-page working paper which talks about the subject of bitcoin and Islamic finance compatibility in detail can be found here.
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