Is trading in cryptocurrencies allowed in Islamic banking
Islamic scholars stipulate that Bitcoin is compatible with Sharia law
The latest declaration by an Islamic scholar that Bitcoin is compatible with Sharia law opened the market to Muslim investors who were previously unsure whether the cryptocurrency qualifies as money.
Muslims make up 23% of the world's population, which is 1.6 billion people worldwide.
Sharia law, or Islamic canon law, prohibits borrowing money at high interest rates, known as usury.
The debate began in the Islamic scholars community since the rise in popularity of Bitcoin, who debated whether virtual currency trading was a form of usury due to its volatility and huge profit and loss margins.
As the fastest growing religion in the world, Islam has recently become a central issue for financial authorities.
The first discussion by the International Monetary Fund (IMF) on the needs of Islamic banking is an example of what's on the agenda.
In Islam, important goods such as gold, silver and salt are used as currency. Therefore, digital or paper money is generally only allowed if it is supported by a commodity with intrinsic value and at a fixed exchange rate.
For example, the gold standard enables coins deposited with metal to be compatible with Sharia law.
Bitcoin on the agenda
Bitcoin was a difficult to quantify currency that acted as both a commodity and a currency.
However, it does fall under certain definitions of money used in Sharia law. Which means everything that is generally accepted as currency by society or determined by the government.
Mufti Muhammad Abu Bakar, a Sharia scholar and head of compliance at Blossom Finance in Jakarta, published an article last Tuesday (10) on whether Bitcoin is Halal (allowed) or Haram (prohibited).
In the article, Bakar made it clear that Bitcoin can be considered legal in certain cases.
“In Germany, Bitcoin is recognized as the legal currency and is therefore considered Islamic money. In countries like the US, Bitcoin does not have an official legal monetary status, but is accepted for payment in various institutions and is therefore considered traditional Islamic money. "
Bitboin in accordance with Sharia law
Sharia has strong ideas about the preservation of wealth, which has resulted in ICOs and the volatile cryptocurrency market is to be valued negatively.
However, the technology block chain o Bitcoin are in line with Sharia ideology; Prohibition of negotiations with banks and partial reserves if ownership of the money in question is considered usury.
Since the blockchain undeniably proves ownership, this method becomes even more compatible with Sharia law than those proposed by traditional banking systems, according to Bakar's article.
The rules were released just a day after the largest Islamic conference on cryptocurrencies, which shows that this issue has become an urgent issue for the Muslim people.
The decision to open up markets previously reserved only for investors practicing Islam may have been responsible for the recent price hike in Bitcoin. As Muslims represent 1 in 4 people in the world.
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