Tuesday, April 06, 2021 / 09.00AM / Bukola
Akinyele-Yisau for WebTV /Header Image Credit: Coded Wap
Recently Professor Abdulrazaq Alaro, Head Department of Islamic Law, University of Ilorin, Kwara State, gave a presentation on "Cryptocurrency: An Islamic Law Perspective" at a webinar organized by Forerunner Welfare Foundation in conjunction with Muslims Students Society of Nigeria (MSSN) Somolu Area Council.
Professor Alaro is a Member of, Financial Regulation Advisory Council of Experts, Central Bank of Nigeria and Member, Takaful Advisory Council, National Insurance Commission.
He started his presentation from the evolution of money. According to him, in the primitive era, there was no money but trade by barter which means people exchanged commodities with one another in the market. But that could not sustain a high volume of business or commercial transactions. This according to him brought the invention of money as a medium of exchange. In early human society, human beings exchanged commodity money in the form of gold and silver. Also, gold and silver were used as currencies during the time of Prophet Mohammad (SAW).
The scholar noted that another type of money evolution was "Fiat Money". He viewed fiat money as a currency that has no intrinsic value. The currency gains acceptance based on the full faith and credit of the issuing authority.
"The money we have today is mere paper but it is of value due to the acceptance from the authorities all over the world".
He identified mathematics-based money (virtual currencies) as another evolution of money that came about 12 to 13 years ago.
Understanding the Breaking of A New Currency Era
Cryptocurrencies according to Alaro are "virtual currencies". In 2014, The European Banking Authority (EBA) defined virtual currency as "a digital representation of value that is neither issued by a central bank or a public authority, nor necessarily attached to a fiat currency, but is accepted by natural or legal persons as a means of payment and can be transferred, store or traded electronically."
In October 2016, the European Central Bank (ECB) referred to a cryptocurrency as a means of payment. Cryptocurrencies are digital or virtual currencies that are encrypted or secured using cryptography. They are created, stored, and traded electronically.
There are hundreds of cryptocurrencies in the world but the most popular among them is Bitcoin because Bitcoin was the first cryptocurrency to be invented. As of today, the market capitalization of Bitcoin is $1trn. Bitcoin is the biggest and the most traded digital currency globally.
Features of Cryptocurrencies
Types of Cryptocurrencies
1. Alternative cryptocurrency coins ( Altcoins)- is an alternative to Bitcoin
2. Tokens - representations of an asset or utility.
Speaking on the historical development of cryptocurrency, Prof. Alaro said Bitcoin was invented in 2008 and created by an unknown person or group of persons using the name Satoshi Nakamoto. He described Bitcoin as a digital ledger of transactions, distributed and duplicated across a network of computer systems.
He highlighted the following issues around Shariah and Cryptocurrencies;
Shariah and Cryptocurrencies
1. Trading and investment in cryptocurrencies- There are two juristic opinions:
The first opinion by Islamic scholars is that trading and investment in cryptocurrencies is Haram. This is mainly by official Iftaa bodies, such as the official Shariah authority in Egypt, Turkey, and Palestine. He said a majority of people declaring cryptocurrency as Haram represent official /constituted authorities of government.
Another opinion is that it is Halal (permissible) to trade in cryptocurrency. These opinions come from respected jurists and not from institutions. The opinion is held by scholars like Prof. Ali EI (Saudi Arabia), Dr. Daud Bakar (Malaysia), Dr. Abdulbasari Mishal, IEF (USA), and Mufti Abu Bakr (South Africa)
Alaro said the International Islamic Faith Academy (IIFA) based in Jeddah, Saudi Arabia has not issued any guidance on cryptocurrency.
According to some Jurists, trading in crypto is Halal because they are digital assets. As assets can be bought and sold depending on the demand and supply conditions in any given market. On the part of those who say cryptos are currencies, he stressed their point that cryptocurrencies have all the features as it is a means of exchange, a unit of account, and a store of value.
Two Rules Governing Foreign Exchange Market in Shariah
1. If one will exchange currency of the same kind. For instance a dollar with a dollar and a Naira with a Naira. You can't exchange an old note and request for a new note, you can't exchange bitcoin for bitcoin and expecting Interest. If you exchange 100, you must receive 100 back with no interest. No Riba in exchange contract
2. No Riba/Interest in Loan /debt contract
In his conclusion, he explained that it is Haram (illegal) to trade in cryptocurrency as it has no intrinsic value, there is high volatility culminating in excessive uncertainty and high risk that is akin to gambling, no link to the real economy, and trading in cryptocurrencies is just like a bubble that had the potential of bursting.
Also, according to him, cryptos are used for illicit activities, are plagued by ambiguity and anonymity, and cryptocurrencies are not issued/regulated by any government or constituted Shariah authority.