Digital Currencies Potentially Haram

Recently, the Indonesian Ulema Council issued a fatwa banning the use of cryptocurrencies as a currency.

The fatwa also prohibits the use of cryptocurrencies in day-to-day transactions as they are not recognised in trade and investment in Islam.

This gazetting provoked reactions among industry players and investors, and the comments were no less cynical in the international arena.

In the commentary on the fatwa, it was explained that the ban was due to elements of gharar (uncertainty), dharar (wagering and harm), dubious value, potential exposure to gambling and not in line with the provisions of the financial authorities.

We do not doubt the decision to ban cryptocurrency because it is indeed not a currency.

In addition, there are laws governing money transfers and trade settlement guidelines, controlled by the central bank.

A fatwa is not necessary for this situation because financial laws are enforced by almost all countries to ensure the stability of their currencies.

We may need syariah guidelines only in dealing with digital assets.

We should think of how to raise a fatwa to a higher level instead of lowering it with an unnecessary gazette.

One needs to understand that fatwas are mostly decided based on information by experts.

If the information leads to a conclusion such as gharar (uncertainty), then the syariah position is that it’s not allowed.

Of course, one cannot physically see a database, software, blockchain, algorithm or programming in a computer.

The value is perceived by parties interested in it. However, Islam still imposes conditions on an item that contains elements of khabith (excretion).

Other than the nature of the thing is permissible, the deed involving the acquirement of the item or asset does not involve batil (void and falsehood), zulm (oppression), fraud and coercion.

In Malaysia, the first expert consultation was held by the Institute of Islamic Understanding Malaysia (Ikim) in February 2018.

Resulting from the event, Ikim published a book, Islam dan Mata Wang Kripto, available on Shopee and e-Sentral.

The syariah stance on cryptocurrency at an early stage categorises it as a non-currency (refer to the notes of the Federal Territory Syariah Law Consultative Meeting, November 2018).

The Perlis Islamic Religious and Malay Customs Council consider digital assets, such as Bitcoin, have a certain value and should be traded in a permissible manner (decision of the meeting on Dec 6, 2018).

However, this digital currency is not guaranteed by Bank Negara and is placed under the regulation of laws related to money laundering (Anti-Money Laundering and Counter Financing of Terrorism Policy for Digital Currencies [Sector 6]).

The Securities Commission also issued guidelines on the issuance of digital assets so that they meet legal requirements and guarantee the interests of the people.

Furthermore, monitoring the country’s financial activities has always been a priority to ensure the stability of the country’s currency, including the development of digital trading platforms, scams, crime and online gambling.

There is an exhaustive list of entities operating without licenses available for reference.

The world is witnessing the growth of digitisation in almost all industries, ranging from government services and education to small- and medium-scale enterprises that rely on digital applications in retail, marketing and payments.

Support sectors — such as finance, technology, legal, transportation and services — are forced to accept this evolution, moving from traditional systems to digital.

There are shariah challenges to recent digital developments.

Among them are rights and legal obligations on damage or loss of life caused by autonomous driving, underlying permissible contract for digital wallets, status of selling an unknown thing via dropship, guidelines and rating for the games industry (in terms of violence, abusive language and criminal mimicking), and the status of digital exchange-traded funds.

Shariah is not just about haram or halal, but to look far and wide for the implications of activities on people, communities and the fate of people in the hereafter based on the teachings of Islam.

Since the main goal of shariah is to bring benefit to human beings, then the possible threat of harm should be one of the final assessments of a decision.