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What is Islam’s Stance on Cryptocurrency, the World’s Sensation? – By Toyin Falola

Toyin Falola

Money is ever-evolving, from the barter system of getting goods (strictly goods) to the use of symbolic representations like cowries and the use of precious stones like gold. What we have today, called fiat currencies—with each country having its own—are products of centuries of historical evolution. The commencement of international currency exchange between countries and financial institutions made some currencies weigh less on the value scale than others. Such international exchanges have contributed to the dynamic nature of currencies, as these media of financial exchange failed to hold a static value for a long period. The apparent volatility in the value of currencies and the need to seek other means of wealth creation spur people to invest in assets such as treasury bonds, real estate, and forex.

As is customary with humans and their unending adventures, cryptographic financial transactions began to surface as far back as 1983, with David Chaum at the forefront of the experiment. Cryptocurrency is a financial system that nobody regulates; it is decentralized and in the control of everyone, having each investor as a percentage holder in the market share and making them a potential driver of the currency. Cryptocurrency can best be termed the democratic financial medium of exchange; it is the “money” of the people, for the people, and by the people. Its decentralized nature is both beneficial and risk-prone. The system’s decentralized nature means users of the cryptography-based currency are not subject to the whims, caprices, or idiosyncrasies of one country or financial institution, as is popular among fiat currencies. Not only is cryptocurrency decentralized, but it is also safe, according to investors, many of whom have added that it is virtually impossible to be scammed in the cryptocurrency market. As common with fiat currencies, fraud-related risks are minimal or nonexistent in the cryptocurrency world. Don’t listen to me, as I am only reporting what I have been told by crypto investors most especially by the young and brash boys of the Yaba Valley in Lagos.

However, the currency’s decentralized nature and lack of strict regulations from a financial body make it extremely volatile and prone to fluctuations. Cryptocurrency has proven to be profitable and sensational over the years, but one of its seemingly negative characteristics is its extreme volatility. Many of the coins in the cryptocurrency market are not stable; their prices rise and fall constantly. While the forex market is considered unstable, cryptocurrency is considered to be more unpredictable.

The world’s first cryptocurrency, which is incidentally the most popular and the set cryptocurrency for gauging other cryptocurrencies, was created in 2009 by someone who remains unknown, save for the pseudonym Satoshi Nakamoto. No one knows if the creator is male, female, or an alien. This pioneer cryptocurrency is called bitcoin. Bitcoin started slowly, then experienced huge spurts of growth—known as Bullish runs—at intervals, shooting it up the ladder as one of the most valuable investment means. A bitcoin is currently worth thousands of dollars. Since bitcoin, there have been several cryptocurrencies based on blockchain technology, and more continue to emerge.

Islam is a religion that has some straight rules and fundamental qualifications when it comes to money and financing. Before a financial medium of exchange can be termed as money in Islam, it must be stable and asset-based. Also, one of the strictest Islamic rules on finance is that it disapproves of overly making profits or gaining an interest on money lent out. These stand as the binding principles of Islamic financial institutions such as Jaiz Bank. Seeing as cryptocurrency is volatile and Islam clamors for stability, is it safe to say that cryptocurrency is not recognized and acceptable in Islam?

At the most recent of the Toyin Falola Interviews, which featured Sheikh Abdurrahman Ahmad, the Chief Missioner of the Ansar-Ud-Deen Society of Nigeria, Mr. Ganiyu Sikiru raised some important economy-related questions. The legality of cryptocurrency in Islam has sparked several religious, financial debates because it has served as a major driver in some economies. Nigeria is a country with little to nothing to contribute to its citizens’ growth and development other than peanuts like ten thousand naira clothed in names such as “Trader Moni” and “N-Power.” The nation’s continually growing population, largely irresponsible government, poor economic policies, and weak financial growth rate have pushed many Nigerians into the cryptocurrency market. For them, cryptocurrency is a worthy medium of investment, and whether by hook or crook, they are willing to search for money to invest in the market and spend hundreds of hours learning about the blockchain technology-based financial medium of exchange.

According to Statista’s 2021 report on how the world is involved in cryptocurrency, it was found out that Nigerians are the most involved, with 32 percent of their Nigerian respondents claiming to have traded crypto at one time or the other. Paxful, a cryptocurrency trading platform, also made a 2020 release on the average amount Nigerians traded on the cryptocurrency market monthly—a whopping $65 million, approximately 0.25% of Nigeria’s federal budget for the year 2020. This puts into perspective how important cryptocurrency is to Nigerians. It is a case of the citizenry watching out for themselves in a nation where the country’s policies frustrate almost all endeavors one ventures into. Cryptocurrency has received widespread acceptance among the Nigerian youth, who are ready to take risks and invest in the highly volatile market; after all, living daily as a Nigerian is equivalent to taking big risks.

Lucratively risky, promising means of wealth creation, volatile, fraud-proof—these are some of the words that aptly describe cryptocurrency. And if Islam and its ideals are painstakingly studied, it would be discovered that some of these words are acceptable, while some others contradict what the religion stands for. Sheikh Abdurrahman Ahmad commented on Islam’s stance as it related to cryptocurrency. According to the Sheikh, cryptocurrency is highly unstable, to the extent that many Central Banks worldwide are kicking against it due to their inability to regulate it. Garad is an essential element of Islamic financial sharia—a law that requires money to be stable. The instability of the currencies means that one could become a millionaire within hours and return to square one within that same hour or the next day. Based on this, Islam does not admonish its adherents to invest in cryptocurrency. The religion requires some regulatory systems for cryptocurrencies before they could be deemed acceptable in Islam. The Sheikh further explained that Islam considers any transaction shrouded in uncertainty as “haram.”

Does that mean Muslims have not been investing in cryptocurrencies? No. There are Muslims who are active participants in the cryptocurrency market. Some Islamic scholars, especially those in the Western part of the world, have claimed that bitcoin meets some requirements for the legality of a money entity in Islam. There are Muslims who invest in cryptocurrency despite the lack of regulations; therefore, the debate on the legality of cryptocurrency may continue as a regulatory body for the decentralized system of financial currency does not seem feasible. Also, Mufit Abubakar, a former Financial Advisor to Blossom Finance on Shariah Law and how it relates to finance, stated in his 2019 report that all financial means of exchange are volatile and susceptible to change, and that since these other means of financial exchange are accepted despite their volatility, it means bitcoin and other cryptocurrencies may have come to stay.

(This is the final report on the interview conducted with Sheikh Abdurrahman on May 2, 2021. For its entire recording, see https://fb.watch/5eN6-jkkUu/) Toyin Falola is the Jacob and Frances Sanger Mossiker Chair in the Humanities and University Distinguished Teaching Professor, The University of Texas at Austin)

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