The Future For Halal Crypto-Assets
Indonesia’s recent announcement casts new light on the future of crypto-assets for Muslims.
Observers have interpreted a recent announcement within Indonesia to imply that cryptocurrencies are viewed as Haram or forbidden for Muslims in the world’s largest Islamic country. However, the truth is finely nuanced. Understanding what is permissible is becoming increasingly crucial for Muslims who wish to engage in Indonesia’s booming crypto-asset markets.
Muslims can engage with crypto-assets based upon the inherent value contained within those assets. This article breaks down the differences between Halal and Haram asset classes and identifies how Muslims can safely engage with crypto-assets in a Halal manner.
According to Bitcoin.com, Indonesia’s Ulema Council reportedly declared the use of crypto as a currency to be Haram or forbidden for Muslims. The article quoted the head of Indonesia’s religious decrees Asrorun Niam Sholeh, explaining that the council held an expert hearing and proclaimed that cryptocurrency has elements of “uncertainty, wagering, and harm”.
Using this definition to define cryptocurrencies as Haram aligns with Islamic teachings. The Quran explicitly forbids Muslims from engaging in gambling. In Surat Al-Mā’idah 5:90–5:91, it states:
“O you who have believed, indeed, intoxicants, gambling, [sacrificing on] stone alters [to other than Allah], and divining arrows are but defilement from the work of Satan, so avoid it that you may be successful. Satan only wants to cause between you animosity and hatred through intoxicants and gambling and to avert you from the remembrance of Allah and from prayer. So will you not desist?”
In this Surah, the Quran entreats believers of Islam to abstain from gambling to ensure they are successful in life and avoid hatred which would avert them from prayer and their connection with Allah. The Quran expresses that gambling is a waste of time and money. Gambling is perceived as contrary to Islamic teachings that advise Muslims to use time and money wisely.
Gambling Creates Harm
When we assess the impacts of gambling within global societies, it is clear that it generates severe problems for both individuals and communities. The physical reaction to gambling releases dopamine in the human brain and acts as an intoxication that can lead to addictive behaviour patterns. Gambling allows financial entities to prey upon individuals who suffer from addiction.
For example, Indonesia’s neighbour Australia is currently experiencing a gambling addiction epidemic. Over 80% of Australians engage with gambling, and over 300,000 people in Australia are addicted to gambling. This figure constitutes around 1.6% of the population and makes Australia the most gambling-addicted country globally.
The Quran has correctly identified the dangers of gambling and the adverse impacts it can cause for individuals and societies. Because of their inherent uncertainty, certain crypto-assets can embody characteristics associated with gambling. For this reason, Indonesia’s Islamic scholars identified some cryptocurrencies as being characterised by “uncertainty, wagering, and harm”.
The Two Kinds Of Halal Crypto-Assets
The statement by Indonesia’s Ulema Council was not legally binding but caused Indonesian Muslims to reconsider the nature of their interaction with cryptocurrencies. The Indonesian government has indicated that the country will not outright ban cryptocurrency as China has done from a legal standpoint.
Indonesia currently has the most significant global surge in cryptocurrency interest. A recent report by Coinformant identified Indonesia as having seen a 1,772% increase in the number of people engaging with articles about cryptocurrency year-on-year.
In their statement, Indonesia’s Ulema Council noted that if crypto-assets can abide by Shari’ah tenets and exhibit a clear benefit, then they are considered Halal and permissible to trade.
There are two ways that crypto-assets can demonstrate value to Islamic investors and qualify as Halal.
- Utility — crypto-assets can provide utility to investors within a system.
- Value — crypto-assets can represent an underlying value such as a commodity. Traditionally, paper share certificates have represented such assets, but they can now be tokenised as security tokens on the blockchain.
These two core values provide opportunities for crypto-assets to be Shari’ah-compliant and considered Halal for Islamic investors. This opens these crypto-asset classes to over 2.2 billion people globally and Indonesia’s over 231 million Muslims.
In Indonesia, crypto-assets are allowed to trade under the same legislation as commodity futures but cannot replace payments in Indonesia’s Rupiah currency. However, like many other countries, Indonesia’s central bank, Bank Indonesia, is exploring a central bank digital currency (CBDC). We will be investigating developments of a proposed CBDC in Indonesia as more information becomes available.
There are several significant opportunities for Indonesians to capitalise on the benefits of crypto-assets in a Shari’ah-compliant manner. In a future Arah article, we will delve into how Halal crypto-assets can drive value and utility to Indonesia’s Islamic investors.
The Arah SuperApp will deliver Halal products and services, including communications, financial services, crypto-assets, blockchain services, and gaming. Arah has developed strategic relationships with the world’s largest Islamic community Nahdlatul Ulama, representing over 117 million members, and Indonesia’s Halal certification body Majelis Ulama.