Cryptocurrencies have perplexed Muslim scholars for several years now.
Debates generally concerns its status as currency: Shari'ah principles forbid usury—lending money to make profits through interest—and prefer exchanges of goods to be backed by physical assets, like gold. But cryptocurrencies typically aren’t backed by physical assets, and people can make massive profits through interest, causing a stir within the Islamic finance community.
But a new paper released earlier this month might finally provide some clarity.
Prominent Muslim scholars have released a whitepaper certifying that Ethereum’s native cryptocurrency, ether, is, in fact, Shari'ah compliant. The paper, by Amanie Advisors, said that because ether is a utility token, which is mostly used to power the network, the Shari’ah laws around currency don’t apply.
But the scholars reserve judgment on particular uses of the Ethereum network. If specific tokens, for instance, are used to make profits from interest, then that wouldn’t be Shari’ah compliant. And if Ethereum started being used as currency, then Amanie Advisors would need to take another look. They also said that both the Proof-of-Work and Proof-of-Stake mining mechanisms could be Shari’ah compliant, but Ethereum’s Proof-of-Stake mechanism is subject to review once work on it has been completed.
Though Amanie Advisors’ judgment is by no means enforceable, their opinion is influential. Amanie Advisors is a well-respected, moderate voice within the Islamic finance community, and the report could convince Muslim developers to develop apps on the network.
“It is easier for Islamic finance houses to produce certified products. Individuals who are more faith conscious can now engage without any doubt that the emerging tech is fully permissible to use,” says Atif Yaqub, a Muslim blockchain enthusiast who helped communicates the technical aspects of Ethereum to Amanie Advisors, and the Shari’ah understanding to Ethereum.
More conservative schools of thought may not accept Amanie’s judgment. In a 2017 speech, Shaikh Haitham al-Haddad, a conservative Muslim scholar who sits on the UK’s Islamic Sharia Council, issued a fatwa on Bitcoin and other cryptocurrencies. But Yaqub says that Amanie and its scholars have a broad enough appeal for their scholarly opinion be widely accepted. Amanie Advisors’ chairman, Dr. Mohamed Ali Elgari, is a professor of Islamic Economics and the former Director of the Centre for Research in Islamic Economics at King Abdul Aziz University in Saudi Arabia.
The project started when Virgil Griffith, head of special projects at Ethereum, wrote a blog article last year saying that ether is more halal than bitcoin. Then, Yaqub ran into Griffith at a blockchain conference in Korea and talked to him about his blog article. Griffith, enthused, reached out to Amanie Advisors. They’ve been working together ever since.
The project attracted controversy last month when Coindesk accused Ethereum of courting investors from Saudi Arabia, which has a poor human-rights record. Griffith said that blockchain technology has generated a lot of interest from Saudi Arabian investors, but the interest has nothing to do with the country’s politics.
Yaqub’s own blockchain project, CLARITY, could stand to benefit from the judgment. Amanie’s judgment means that it’d be easier to connect Islamic Finance products into CLARITY’s ecosystem. But Yaqub tells Decrypt that “the religious input was purely from Amanie and therefore no direct impact from my involvement.”