Mustapha Abubakar, M. Kabir Hassan, Muhammad Auwalu Haruna
Abstract Cryptocurrencies are hidden monies that are specifically created to be used as digital currencies while assuming the characteristics of real money. Barring the divergent opinions on whether permitted in Islamic law (that is/are halal) or forbidden in Islamic law (that is/are haram), and for which the swing tends to be in favor of its blockchain underlying technology permissibility in Islam, cryptocurrencies are undoubtedly indicating potential for relevance in the global trade, investment, and other contract settlements in some years to come. The potential of the blockchain technology is phenomenal with recent estimates suggesting it will be worth more than $20 trillion in just two years, which is more than the entire American economy. Since fortunes are made by those entrepreneurs and indeed savvy investors who have discerned its future potential earlier on, there exists some great temptation for people to jump on the blockchain bandwagon. Apparently the growing acceptability of digital fiat money as a result of technology development on one hand, and the failure of the paper money to mitigate inflation and other economic disequilibria since the disappearance of the gold standard on the other, various forms of cryptocurrencies including Bitcoins (referred to as the king) appear to roar toward wider recognition. However, an emerging phenomenon associated with cryptocurrency revolution is an observed significant fluctuation (the tide) in its value and thus a subject of discussion within Islamic finance community and beyond. In the midst of this also is the current agitation founded on some of the Islamic law (Sharīʿa) view on the necessity of asset-backed money, to be extended to the current cryptocurrency innovation for its transformation into a Sharīʿa compliant precious metal backed currency. The big question now which this chapter sought to provide the answer is, what are the implications of these developments to a more established and widening global phenomenon of Islamic finance and its development in Muslim world vis-á-vis aspirations for sustained economic development. The work finds that cryptocurrencies would generate three advantages over all forms of money including gold through: establishing a unified financial system through its standard decentralization, being rarer than gold and its significant mitigation of inflation. It is also noted that the prevalent foreign exchange risk resulting from the underlying activities (rather than the currency itself) is free from speculation (Gharar). It is, therefore, recommended that stakeholders in the Islamic Finance world should not be passive but be proactive in commencing processes to develop technical notes, standards, and operational guidelines to partake in the inevitable migration to cryptocurrencies.
Mohd Faiz Mohd Yaakob, Mohd Aliff Mohd Nawi, Raja Rizal Iskandar Raja Hisham
Abstract 
 Today's world is recording the rapid development digital transaction. Bitcoin has become one of the phenomena for online transactions. There are risks that come along with this phenomenon. In addition, this phenomenon has also implicated the transactions conducted by individuals and Muslim communities around the world. In fact, there is a view that permits the use of this transaction to pay zakat with special conditions. The objective of this study is to explore the risk of using Bitcoin; and to explore the zakat institution's readiness to accept the Bitcoin transaction. Methodology of this study using a qualitative study with document’s analysis design. The findings showed that there are five main components in the zakat instituions readiness in Bitocin acceptance such as Education; Investment and Economics; Technology; Safety and Continuous Improvement.
 Abstrak 
 Dunia masa kini mencatatkan perkembangan transaksi digital yang begitu pantas. Bitcoin telah menjadi salah satu fenomena kepada perkembangan urus niaga transaksi dalam talian. Terdapat risiko-risiko yang datang bersama dengan fenomena ini. Selain itu, fenomena ini juga telah memberikan implikasi kepada urus niaga yang dijalankan oleh individu dan masyarakat muslim di serata dunia. Malah, terdapat pandangan yang mengharuskan penggunaan transaksi ini untuk membayar zakat dengan ditetapkan syarat khusus. Objektif kajian ini bertujuan meneroka risiko penggunaan Bitcoin; dan meneroka kesediaan institusi zakat dalam penerimaan transaksi Bitcoin. Metodologi kajian ini menggunakana kajian kualitatif dengan reka bentuk analisis dokumen. Dapatan mendapati terdapat lima komponen utama dalam kesediaan intitusi zakat seperti Pendidikan; Ekonomi dan Pelaburan; Teknologi; Keselamatan dan Penambahbaikan Berterusan.
This chapter intends to document the various ways that the nascent technology, blockchain, and other forms of distributed ledger technology (DLT) can provide both increased and decreased risk as well as offer FinTech industries a fertile environment to pursue key technological advancements that can help shape almost every facet of the financial world. Issues of trust, transparency, and privacy will be explored as it pertains to the execution of blockchain technology within financial sectors. Strengths and weakness will be explored within regulations, legal environments, risk management, and the environment. Based on the findings of a comprehensive literature review, possible solutions and recommendations will be provided for governmental agencies, regulators, and users of financial services with a special focus on Islamic FinTech. Future research directions will also be shared that can assist Islamic FinTech.
Undoubtedly, the emergence of cryptocurrencies has imposed the challenge of addressing their Shariah issues. These issues include the very permissibility of their issuance in view of the fact that they are not backed by real valuable assets or supervised by financial authorities, which makes their holders vulnerable to possible fraud and manipulative fluctuations in their values. Other issues include trading in them and whether or not they are considered as commodities subject to the injunctions pertaining to Riba as they apply to conventional currencies. In addition, they have potentially negative implications for the market, such as their use in money laundering, drugs trafficking, and other illegal dealings. This paper treats these Shariah aspects of cryptocurrencies.
This paper applies biomimetic engineering to the problem of permissionless Byzantine consensus and achieves results that surpass the prior state of the art by four orders of magnitude. It introduces a biologically inspired asymmetric Sybil-resistance mechanism, Proof-of-Balance, which can replace symmetric Proof-of-Work and Proof-of-Stake weighting schemes.
The biomimetic mechanism is incorporated into a permissionless blockchain protocol, Key Retroactivity Network Consensus (KRNC), which delivers ~40,000 times the security and speed of today's decentralized ledgers. KRNC allows the fiat money that the public already owns to be upgraded with cryptographic inflation protection, eliminating the problems inherent in bootstrapping new currencies like Bitcoin and Ethereum.
The paper includes two independently significant contributions to the literature. First, it replaces the non-structural axioms invoked in prior work with a new formal method for reasoning about trust, liveness, and safety from first principles. Second, it demonstrates how two previously overlooked exploits, book-prize attacks and pseudo-transfer attacks, collectively undermine the security guarantees of all prior permissionless ledgers.
This paper tends to examine cryptocurrency and its permissibility in the structure of Islamic banking finance. It identifies the major types of cryptocurrencies and also revealed its benefits. Despite these benefits and relating it to Islamic finance it was viewed from two angle; cryptocurrency and money in Islam and also cryptocurrency and the principles of Islamic finance. The study revealed it is compatible to structure of Islamic banking and finance when compared side by side to the features of fiat money which is currently in use. More so, the study clears some of the key issues like its legal tender, issuer unknown, money laundering & illicit purpose etc usually raised against cryptocurrency. The study concluded that cryptocurrency as an economic innovation has secured a pass mark to fit into the structure of Islamic banking and finance. The study further recommends that there is need to create standards guiding its operations, further ensure full disclosure on its transactions etc.
The existence of money makes buying and selling activity easier than the barter system. However, the increasing globalization of the world economy demands speed accelaration, ease and security of financial transactions. The discovery of cryptocurrency provides solution for the current payment system which relies highly on the third party in conducting digital transactions. One of those cryptocurrency products is Inacoin which is originated from Indonesia. Because this cryptocurrency is a contemporary problem that cannot be concluded directly from the classical fiqh book, a thorough investigation is needed to obtain the validity of this money from Islamic perspective. This research is a qualitative research that uses multimethod of normative-empirical Islamic law perspective in discussing the aforementioned problem. This study concluded that the existence of Inacoin cannot be accepted as money since there are Islamic requirements or criteria that are not met. In addition, the use of Inacoin is mostly for trading commodity, not as money. The Inacoin trade is legitimate but unlawful, because Inacoin has fulfilled the pillars and requirements of the Al-Ṣarf, yet contradicted some Islamic principal such as maisir, gharar, and possibility of harming its user
Maryam Jameelah Hashim, Mohd Faizal Kamarudin, Nur Afizah Muhamad Arifin, Mohd Rahim Khamis
Cryptocurrency is a digital currency that is powered by blockchain technology. One of it is bitcoin, a system that is digitally created and traded tokens to which value is assigned. The level of adoption of bitcoin has accelerated due to several fiscal crises that leads to financial crashes that have affected the lives of millions of people. This has created a demand for new kinds of niche money. Issues need to be closely discussed before it is fully accepted by customers as a medium of exchange. Even though bitcoin is used as a medium of exchange, there is still no specific guidance and benefits to the users. The issues concernedare whether the customers will get the benefits of privacy, lower transaction costs and freedom in payment. Therefore, the aims of this paper are to identify the relationship between transaction cost, privacy and digital payment as a benefit of bitcoin as a medium of exchange. This research will be conducted in Klang Valley area and the questionnaires will be disseminated directly to respondents. These respondents will be identified using probability simple random sampling. A regression analysis will be conducted comprising 200 observations in Klang Valley, Malaysia. Partial least square-structural equation (PLS-SEM) will be used. In the measurement model, reliability will be assessed by examining the Composite Reliability (CR), while validity will be assessed by convergent validity and discriminant validity. Subsequently, structural model testing with 500 re-samples was applied to test the hypothesized relationships between exogenous variables and endogenous variable. Digital payment and privacy are statistically significant towards the benefit of using bitcoin as a medium of exchange. It was found that the digital payment contributes the highest benefit to the customers followed by privacy. The results provide interesting insight into the determinants for the customers benefit using bitcoin. Although the findings show significant results customers should always decide the good and bad thoroughly before finalizing their decisions on the usage of bitcoin. Therefore, it is hoped that this study will enrich the growing literature on the subject and future research needs to explore on the benefits of using bitcoin among the real users. This study is expected to give guidelines to the policymakers on the implementation of bitcoin as a medium of exchange. It is also expected that the results may provide interesting insight into the determinants of customer benefits using bitcoin. Simultaneously, it will contribute to the elements of industry, innovation and infrastructure.
This chapter presents the revival of waqf in both its forms – immovable and movable – to demonstrate the potential of waqf in order to integrate it with contemporary fintech innovations like crowdfunding and blockchain. With reference to blockchain technology, which is a decentralised public ledger, it has been used for different applications, from security, shipping, to commercial transactions. WaqfCoin, using modern technology, which integrates crowdfunding and blockchain, will promote charitable endowment. In Malaysia using one of the ten stipulations which is istibdal, an old waqf school was converted into a college known as Al-Mashoor Maahad in Penang. There has been huge support for different schemes through online waqf donation based on the waqf shares model. The practice of creating waqf shares in Muslim-majority as well as Muslim-minority countries provides successful cases in raising funds to meet the different needs of various communities.
This chapter examines technical innovations and financial technologies, particularly, the potentials of smart contract in reshaping Islamic trade finance. It explains modern Islamic trade finance practices with a focus on products, problems and prospects. The chapter focuses on smart contract and its current application in the finance industry. It presents the process of smart contract implementation in Islamic trade finance with a proposed model of new smart platform and relevant discussions on legal implications and Shari‘ah aspects of the model. The chapter provides a conclusion and some areas for further research and describes the gap by examining potentials of smart contract in Islamic trade finance as well as possible legal and Shari‘ah implications of the implementation. The ability to change and adopt new technologies will determine the future of Islamic finance generally, and in particular, Islamic trade finance. Smart contract’s potential for disruption of Islamic trade finance goes beyond simple digitisation of Islamic trade finance products and services.
This chapter provides an insight into the potential usage of fintech in the banking landscape and issues faced by bankers and regulators in regulating the usage of fintech and cryptocurrency, and what the potential areas are where the technology can be misused. It considers how the regulation of technology usage in the financial services landscape is important to avoiding financial crime. The chapter also provides case studies from countries such as Australia, the United States, the United Kingdom and Japan, who are taking a lead in regulating fintech and digital currency usage. It examines an example from Malaysia to demonstrate how a central bank is taking the lead by issuing a fintech regulatory sandbox. Fintech powered by blockchain technology has huge importance for the financial services industry and can come in handy to solve problems such as delays, cost, duplication and reconciliation. Fintech describes financial services using innovative or disruptive technology to enhance customer’s experience.
The blockchain was introduced as the core technology of the bitcoin concept of Satoshi Nakamoto in 2008. A blockchain is a technique to store, add and validate transaction data in an open computer network by cryptographic techniques in such a way that the correctness, immutability and safety of the data is ensured by a decentralised consensus mechanism. In the bitcoin blockchain, nodes that validate blocks by solving the cryptographic task are called “miners”. For an assessment of bitcoin from a Shari‘ah perspective, it is important to distinguish the coin “bitcoin” from the underlying blockchain or Distributed Ledger Technology. The Ethereum blockchain with Ether as its own token can be considered as a kind of operating system for a wide range of decentralised applications. Developments in the field of blockchains, cryptocurrencies, smart contracts and intelligent agents have attracted the attention of practitioners and proponents of Islamic finance as well as Shari‘ah scholars.
The institution of Waqf always played a pivotal role of sustainable economic development in a Muslim society throughout the history of Islam. However, recently, even with the introduction of the modern Islamic finance a few decades ago, the institution has been struggling to rejuvenate its past glory. The key issues are lack of availability of data and historical records, weak transparency and public disclosure, improper audit and compliance practices. The advent of the blockchain has offered a ray of hope for the revival of the Waqf institution. The blockchain has already proved itself as a game changing breakthrough. Similarly, the Waqf institution could be invigorated with the innovative and efficient use of the blockchain. Moreover, the use of smart contracts on blockchain could further enhance the performance and efficacy of the Waqf institution. It is strongly believed that with the firm Islamic jurisprudential foundations of the Waqf, blockchain, and smart contracts will ensure that the Waqf institution could partake in the economic development of the whole Muslim world.
Focus on a concrete project, share the results, contain the risk. These are some of the precepts of Islamic finance. But they are also the cornerstones of crowdfunding. This is why this form of financing is cutting out its space. With an extra pillar: no interests. The resources are still limited, but the Muslim crowdfunding ecosystem is diversifying: from the most basic reward based on social lending, with an eye to the Fintech. FinTech refers to technofinance or financial technology, that is to say, the supply of services and financial products provided through the most modern technologies made available to ICT. The services provided by FinTech are essentially those of traditional finance: therefore, from simple transactions to payments, to brokering and risk management, typical and exclusive of this sector are the activities linked to electronic currencies such as for example, the Bitcoin.
Abulfathi Ibrahim Saleh Al-hussaini, Adamu Abubakar, Mohamad Fauzan Noordin, Hazwani Mohd Mohadis
Cryptocurrency is a peer-to-peer digital exchange system that uses cryptography to generate and distribute token. It is based on an encrypted, peer-to-peer network that facilitates digital barter. By using a cryptocurrency, users are able to exchange value digitally without third party oversight. In regard to the Islamic perspective of cryptocurrency, Muslim scholars and Shari’ah experts have developed varied opinions, some considering it to be permissible (halal) and others prohibited (haram). Among those scholars who consider it to be legally impermissible put forward their reasons, some of them arguing that it violates the constitutions of their governments. On the other hand, there are Muslim scholars who regard cryptocurrency as permissible in principle. Furthermore, there are many uncertainties related to the implementation of the cryptocurrency reported by many researchers and mentioned in the respective fatwas. A number of empirical studies have acknowledged the fact that cryptocurrency, from the Islamic perspective, constitutes the focus of most ongoing research work. Therefore, this current paper seeks to examine the user’s perception of cryptocurrency system application from the Islamic views. The paper utilized qualitative research approach by conducting interviews in order to determine the user perceptions of the system. The interview data gathered were analyzed. The findings indicate that there is lack of Islamic law on the basic criteria for the use of cryptocurrency as either a legal or illegal machinery transaction tool. Hence, Islamic digital currency model is necessary for applying Islamic law to the use of cryptocurrency.
This research study shows the perspective of Islamic banking on Shariah compliant FinTech (financial technology) model. As startup firms providing and compete in the global market regarding financial services including e.g, online investment, Peer to peer equity crowdfunding, online payments (E-Wallets), philanthropic crowdfunding platforms, RegTech, Distributed ledgers technologies, crypto currency and many other threats of Distributed ledgers and digital currencies technological advancements. By keeping mentioned technological advancement, it is observed throughout the Islamic world by Shariah Experts and technology industry experts regarding Islamic FinTech ecosystem implementation. Primary data was collected through self administrative instrument with some previous research studies. Targeted population for this research contains Islamic and window Islamic banking staff, 150 respondents were approached with in the Karachi city. Testing shows positive results of independent to dependent variable of Shariah compliance relationship regarding FinTechmodel in Islamic banking according to Shariah-principles. Almost in the vicinity of Islamic banking and finance with FinTech implementation researches are under process in many universities or institutions throughout the world. Some researches shows positive results of FinTech aspects on Islamic banking services. Chosen independent variables have strong correlation with the dependent variable. Debated areas of FinTech and Islamic banking services have significant results produced under this research.
M. Abdeen, Salman Jan, Sohail Khan, Toqeer Ali Syed
Takaful – an Islamic alternative to conventional in-surance – is fast becoming one of the most important constituents of modern Islamic financial market. The fundamental difference between the two forms of risk mitigation is entrenched from the type of contract selected. The conventional insurance work on the principle of bilateral contracts between the customer (insured) and insurance provider where the insured pay regular premium in return for payment of compensation, in case of a predefined event occurs. On the other hand, Takaful works on the principle of mutual guarantee, cooperation and indemnity where the participants in the scheme mutually insure each other. The Takaful providers are mainly responsible for managing, administering and investigating the Takaful funds according to Islamic laws. This studies provides a decentralized architecture that securely implements Takaful risk mitigation system accord-ing to its principles. Since all major banking sectors are shifting towards Blockchain technology, as it is currently the only viable solution to offers security, transparency, integrity of resources and ensure trustworthiness among customers. The proposed studies offer state-of-the-art Blockchain technology and focus provide a Takaful system that strictly follows the underlying Islamic laws for this risk mitigation system. Moreover, the proposed platform provides all Takaful transactions over Blockchain that brings confidence and transparency to the community involved in the process.
Blockchain and smart contracts are forming new systems to record and manage businesses with less need for intermediaries. The new systems are expected to offer high level of governance with lower cost as compared to the traditional technologies. While there is a continuous effort to apply this innovative technology in several businesses, Islamic finance in general—and Islamic social finance in particular—are facing few challenges that could be solved by such innovations. Islamic social finance institutions such as waqf are facing some challenges in enhancing its governance structure to ensure Shariah compliance as well as economic efficiency. This chapter explains how blockchain and smart contract technologies can help these institutions for better governance, lower transaction cost, more transparency, and higher trust, hence enhancing the business flexibility and market accessibility. It also presents some related cases that are currently under development as an evidence for the practicality of these technologies in the Islamic social finance arena.
We incorporate skewness and kurtosis into an optimization process for a unique student-managed fund. Unlike the vast majority of such funds, which hold only equity, our fund includes REITs, cryptocurrency, and peer-to-peer loans. Adding these unusual asset classes allows our students to explore portfolio management concepts more generalizable than just picking stocks. While most of our assets cannot be recommended based solely on traditional mean-variance analysis, they nonetheless offer beneficial contributions. Using polynomial goal programming to incorporate higher moments in our optimization, we find that asset classes dominated in mean-variance space can make meaningful contributions to the full risk-return profile of the portfolio. In particular, we find that including cryptocurrency and peer-to-peer loans can increase the skewness and decrease the kurtosis of our portfolio.