In attempts to convince Muslims that investing in crypto complies with their faith, United Arab Emirates-based OneGram will release a gold-backed digital currency.
The increasing interest in cryptocurrencies worldwide essentially extends into the primary centers of Islamic finance, southeast Asia and the Gulf. However, digital currencies and associated technologies are objects of speculation and products of financial engineering. The coins do not fit well with the religion because the Sharia principles, aside from prohibiting interest payments, emphasize actual economic activity based on real assets, not speculation.
As an attempt to sway the debate, cryptocurrency startups are planning to release instruments that are backed by physical assets and therefore certified as valid by Islamic advisors. To limit speculation, every OneGram cryptocurrency unit is supported by at least a gram of physical gold stored in a vault.
“Gold was among the first forms of money in Islamic societies, so this is appropriate. We are trying to prove rules and regulations from Sharia are fully compatible with digital blockchain technology,” OneGram founder Ibrahim Mohammed said.
So far, around 60% of the overall planned amount of the coins have been issued. OneGram aims to release the remaining coins before an exchange listing scheduled by the end of May. The company obtained a ruling from Dubai-based advisory firm Al Maali Consulting, stating that its digital currency complies with Islamic principles.
OneGram is not the only startup to take this approach. In October, HelloGold has conducted the first offering of its gold-backed coin in Malaysia upon receiving the permission of Islamic scholars from Amanie Advisors in Kuala Lumpur.
HelloGold’s chief marketing officer Manuel Ho said its coin conforms with Islamic principles since the transactions occur within a defined period, therefore addressing the issue of the ambiguity of pricing and making them less volatile. In December, Halal Chain, also based in the United Arab Emirates, held an ICO. Its price is linked to data on Islamically permissible goods.
National Sharia authorities have not ruled on whether digital currencies are permissible. Also, while different international bodies recommend standards for Islamic finance, none has the power to impose them. Several governments are worried about the possibility of instability, but unwilling to miss the chance of benefiting from the technology.
The UAE and Saudi Arabian central banks, although they have not imposed outright bans, have cautioned their citizens about the risks of trading Bitcoin. Islamic jurists in South Africa have ruled in favor of digital currencies, arguing that they have become commonly used and socially acceptable.
However, in October, the Durban-based Darul Ihsan Centre refrained from endorsing them due to its concern over potential pyramid schemes. Moreover, some British, Indian, and Turkish scholars have called digital currencies impermissible. Egypt’s Grand Mufti declared in January that they should not be traded.
According to a research officer from Malaysia-based International Shariah Research Academy for Islamic Finance, Farrukh Habib, what makes the debate complex is that there is a multitude of digital coins with different features related to trading, mining, and distribution. Habib believes that a “blanket” Sharia ruling on digital currencies is not appropriate:
“They are also very different in terms of their underlying commodities, projects or businesses, so it’s not appropriate to have a blanket Sharia ruling for all. Most of the existing Sharia rulings either deal with only Bitcoin, or include all types of cryptocurrencies, disregarding their peculiarities,” Habib said.