Digitalization and the prospects of cryptocurrency in Islamic finance

Abstract

Are the principles of Islamic finance compatible with cryptocurrency? In the current age of digital transformation, to be followed perhaps by a quantum transformation in computing, plus the involvement of central banks, resource scarcity and climate change, this is the issue addressed in the article. Financial transactions are central to digitalization through fintech and other services. This conceptual article highlights the essentials of cryptocurrency, its history, structure and how it works. Different types of cryptocurrency mining will be examined and explained in detail. The primary purpose of this research is to investigate the extent to which cryptocurrency structure complies with the maxims of Islamic finance. The article discusses the question in relation to sharia jurisprudence and conformity with the views of Islamic finance scholars. Our discussion extends the rapidly growing literature on cryptocurrency by examining its compatibility with the conceptions of Mal (‘money’) in sharia and Islamic scholarship and its status as fiat money. Taking the view that despite recent glitches, cryptocurrency has a future in the financial ecosystem, we sketch the challenges of facing the introduction of cryptocurrency into Islamic finance. The research has profound policy implications: for the protocols and systems adopted by Islamic financial institutions, their regulation and the role of miners. This research is particularly relevant to avoiding the pitfalls that have so often befallen conventional financial institutions.