Blockchain platform Stellar’s recent Shariah certification was an important, if small, step toward the Islamic world’s embrace of cryptocurrencies and blockchain technology. It’s unlikely, however, to lead to a quick opening of the market to the world’s 1.8 billion Muslims.
The Stellar platform and its cryptocurrency (XLM), the world’s sixth largest digital currency with a market capitalization of $5.62 billion, according to CoinMarketCap, were deemed “halal” last week by Islamic scholars on the Shariyah Review Bureau, an advisory agency licensed by the Central Bank of Bahrain. Important to Stellar’s certification was its model and mission. For other major cryptocurrencies including bitcoin (BTC), however, debate continues, even after one leading Islamic scholar deemed bitcoin permissible this past spring.
Startups have emerged that are issuing cryptocurrencies backed by physical assets in an effort to get more Muslims on board.
“In order to become a Shariah-compliant money, blockchain and cryptocurrencies should be something tangible, recognizable that creates value, nonspeculative, and they should have pure economic value,” M. Kabir Hassan, professor of finance at the University of New Orleans, tells ThirtyK. “At present, these aspects are missing,” says Hassan, who is also a former World Bank, International Monetary Fund and Islamic Development Bank consultant.
Currently, scholars, financial companies and academic institutions disagree about whether cryptocurrencies are a form of wealth and “real” currencies. Widespread adoption isn’t likely, Hassan says, until higher authorities, such as the International Islamic Fiqh Academy, make their views known. Technology also has to be transparent, he says, and not in the hands of a few.
Backed by Gold
Key to Stellar’s certification is how it verifies transactions. Rather than with mining, a transaction is verified when “trusted nodes” including financials, companies, nonprofits or even individuals reach a consensus on that transaction. Stellar’s mission is also important: to ensure financial inclusion and access.
That’s crucial in Islamic finance, which considers social and economic objectives more important than profit and prohibits money from being used a tool for earning interest. Bitcoin mining, in which computers compete against one another to solve complicated mathematical problems, has been compared to gambling, which is not permitted in Islam.
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