Prominent Muslim scholars and financial advisors published a white paper considering Ethereum “halal,” or permissible, in accordance with Sharia Islamic law. Clarity for Muslim buyers can stimulate an additional demand for the cryptocurrency Ether.
Compliance with Sharia Islamic law has been contemplated in the cryptocurrency market for some time. Virgil Griffith, an American programmer and Head of special products at the Ethereum Foundation, first considered the matter in October 2017. It was first reported that a technical document by Oman Amanie, Islamic Finance and Sharia Advisor, highlights that the cryptocurrency Ether actually adheres to the Sharia Islamic law.
In the Islamic culture, usury, the process of lending money to benefit from the interest generated, is considered “haram” or sinful. Therefore, they only accept profits earned through the appreciation of a physically supported asset, such as real estate or gold, since they comply with Sharia law.
Most cryptocurrencies are considered “haram” because there is not a physical asset that supports them. On the contrary, coins often represent a pseudo investment in a corporation. Since most cryptocurrencies are likely values, as stated by the SEC, the appearance of interest causes a stir among those who are in Islamic finance.
Instead, Ether represents a “utility token” and works like a cryptographic coin that feeds Ethereum, Amanie argued. Therefore, owning ETH is considered “halal.”
That being said, Muslim scholars reserved their thoughts on specific use cases for ETH, since numerous tokens are executed in the protocol. In cases where tokens are used to raise money for businesses, which closely resembles interest, that activity would be considered “haram” in the Islamic culture.
In the most nuanced part of the analysis, the authorities ruled that Ethereum, the proof of work (PoW) and the proof of participation (PoP) comply with the principles of Sharia. However, the PoP, which is the act of “blocking” tokens to receive bet rewards, will still be a matter of debate once ETH2.0 is activated.
Amanie is a much admired voice in the Islamic financial industry. Although the opinion is not final in any way, it still has weight among devout Muslims. Given the fact that there are around 1.8 billion Muslim followers worldwide, this decision could have material ramifications in the demand on ETH.
The ruling is similar to the comments made in March by the President of the United States Stock Exchange Commission (SEC), who stated that Ethereum is closer to a commodity than to a security.
Atif Yaqub, a Muslim blockchain expert who helped explain the technical details to Amanie, concluded that people who are more faith conscious can now participate without any doubt that the emerging technology is fully allowed to be used.
Ethereum, currently in the 2nd place by market capitalization, has risen about 0.33% in the last few days. ETH has a market capitalization of US $ 18.19B with a 24-hour volume of US $ 5.88B.
To conclude, it is observed that business with cryptocurrencies can be done even in extremely conservative cultures such as the Islamic one. As long the activity is supported by a physical asset, it will be considered to be “halal” or permissible.
By Willmen Blanco