Adoption of cryptocurrency in the Middle-East and North Africa region currently lags behind investment in other major regions, particularly the United States and Asia. At least in part, that is because of uncertainty regarding whether this emerging asset class complies with sharia, or Islamic Law.



Sharia prohibits usury, which can be broadly interpreted as ruling out the payment of interest on a commodity or money, without any work having been undertaken in return.

Sharia also prohibits investments that involve excessive uncertainty, as this goes against the overarching aim of preserving wealth - a key consideration for Islamic financial investments. Investments that involve or enable illegal activity are not permitted either.

As such, some standard investment products, like deposit accounts, and loans, are prohibited under Islamic Law, because they involve the payment of interest.



Because of these constraints on what constitutes a permissible investment under Islamic law, there has been considerable debate among Muslim scholars about whether or not cryptocurrency is shariah.

In some predominantly Muslim countries, such as Egypt and Turkey for example, Bitcoin is outlawed because it is used for illegal activity. Of course, this applies to fiat currency, too, which is undoubtedly harder to trace than funds held on public blockchains, and accounts for the vast majority of illegal activity.

But there are other objections. The fact that cryptocurrency is generally not issued and backed by a known central authority raises concerns for some scholars, as does the speculative nature of much of the investment in the asset class, and excessive uncertainty for investors that comes with it.

Despite those misgivings, however, some other jurisdictions have been more open to the technology. Dubai, for instance, a global financial centre which legs local currency to the US dollar, has embraced blockchain. The authorities there aim to have migrated a range of official records and real estate services to blockchain based platforms by 2020.

There are also several exchanges in the region, including BitOasis and Palmex. BitOasis has recently rolled out the first multisignature wallet in the MENA region, while Palmex offers its own native token, Dubaicoin. Arabianchain, the company behind Palmex, is building a platform to offer Sharia compliant smart contracts for business.

In a first for altcoins, in July of this year the Stellar Development Foundation announced that it had been granted a certificate of Sharia compliance for the Stellar technology and network (including for XLM, the native cryptocurrency) by the Shariyah Review Bureau (SRB), an advisory agency licensed by the Central Bank of Bahrain.

What seems evident from these examples is that whether or not a given cryptocurrency is deemed sharia in a particular country or region, depends largely on the nature of the project. In other words, use case matters.

Broadly, those who believe cryptocurrency is permissible, point to the fact that Bitcoin and others satisfy the Islamic definition of ‘customary money’ inasmuch as people are willing to accept it as payment, even though it is not issued or backed by a known central authority.

In addition, where national governments recognise cryptocurrency as legal tender, such as in Germany and Japan, that automatically satisfies the requirements to be considered money under Islamic law, and so makes crypto shariah there.

If use case matters, this begs the question, what other positive qualities of cryptocurrency, or particular projects, might be appealed to, in order to convince Islamic scholars to consider them shariah?

For one thing, it seems likely that the more that a coin is intended as a medium of exchange, the more likely it will satisfy the definition of customary money. For this reason, altcoins like BAY, the native cryptocurrency of BitBay, the decentralized marketplace for goods and services, offer a particular advantage, given their explicit role in facilitating exchange.

Also, to the extent that a cryptocurrency reduces risk, that might help to overcome objections relating to excessive uncertainty.

Here, again, BitBay’s use of double-deposit escrow to secure transactions, along with its reputation management system, considerably helps to reduce risk for those entering into contracts on the marketplace itself. The BitBay dynamic peg, by aiming to lower price volatility, and undermine purely price-based speculative activity, should also help to lower uncertainty for those holding it.

In addition, there may be major scope for proof-of-stake based coins in particular to gain traction in Muslim countries. That’s because cryptocurrencies that are validated by proof-of-stake offer a potentially sharia-compliant means of earning income from capital.

For cryptocurrencies based on proof-of-stake, like BitBay (but not Bitcoin), the security of the distributed ledger of who owns what is based on a process called ‘staking’, with staked coins being used in the validation of transactions on the network. In return for staking, holders of those coins receive a regular return.

Because proof-of-stake based cryptocurrency itself can be put to productive use in this way - helping to maintain the integrity of the network as a whole - it may be possible for such protocols even to satisfy considerations associated with cryptocurrency as a pure financial investment, as opposed to simply hoping to satisfy the requirements to be considered customary money.

Clearly, when thinking about Islamic finance, the delicate and complex considerations regarding what constitutes shariah, has major implications for whether Muslims are likely ever to adopt cryptocurrency on a large scale.

What stands out from the rulings of Islamic scholars so far, is that it is unhelpful to appeal to the possibility of speculative gains or the decentralized nature of the technology. If anything, volatility and speculation, as well as lack of a central authority, put cryptocurrency at a distinct disadvantage for shariah compliance. And the well-publicised use of Bitcoin for illicit purposes also makes it decidedly un-Islamic.

That said, there are also reasons to suppose that as the various other dimensions of the underlying technology become more evident, the generalised rulings against cryptocurrency that we have seen to date, may give way to a more nuanced approach, with particular platforms achieving acceptance, depending on use case.

There have already been encouraging developments in the MENA region, in the cases of some specific projects, which seem to have struck the right balance in their approach.

We at BitBay also believe that use case matters. And we hope that BitBay, in its aim to limit volatility, its use of double-deposit escrow to secure transactions, reduce risk and promote free trade, and its deliberate use of mechanisms to reward those who treat it not speculatively, but as a long term productive investment and store of value, will also appeal to those in the Muslim world.