Cryptocurrency has many benefits including ease of transactions and transparency, but it may create a path for unethical practices. Joerg Hansen, CEO of Caiz Development GmbH, writes for Payment Expert on why Islamic principles can be the key to keeping crypto legitimate and safe.
In Islam, truthfulness and honesty are key components of our faith. It’s up to us to make sure all of our dealings are of the utmost integrity.
One of crypto’s advantages may also be a drawback–there’s no central authority to hold anyone accountable. The lack of regulation may lead some people to capitalise on it, and some countries have banned crypto because of that.
There’s also a transparency issue. While it’s true all crypto uses a public ledger, it can still be used in deceitful ways. Crypto users have their own digital wallets to make transactions. If you use a public wallet, crypto transactions are transparent. That’s one way to help ensure the user stays honest—people often behave differently if everyone’s watching.
However, crypto also has the ability to be extremely private if the user doesn’t give the wallet an identity or if they use a privacy-focused cryptocoin.
Am I saying private transactions are inherently dishonest? No. There are plenty of innocent cash transactions that a user would want to keep private like—buying a family member a surprise gift.
Another example of an innocent transaction is donating to charity, which is one of the tenets of Islam (zakat). Some people want to keep donations anonymous, which is understandable.
The laws of Islam include what we’re allowed to take part in (Halal) and what we aren’t (Haram). The term Halal means permissible in Arabic. It applies to safe foods, personal care products, actions and even financial transactions.
Islamic financial principles require investments to be fair and in well-vetted entities, which cryptocurrency can be with the right self-regulations in place. Crypto is Halal if it’s done right and Islamic principles can benefit everyone in the space—not just Muslims.
Sharia, or Islamic law, forbids unequal charges, which in banking is called riba. That includes interest when lending money because it can be exploitative. Rather, both the buyer and seller must agree on a markup, which is called Murabaha, or cost-plus financing.
These concepts date back to the times of the Prophet Muhammed, when currency was based on silver and bullion gold. The same concepts can be applied today even though money is more of a medium of exchange for goods and services. The benefit of crypto is that it can make even more money and with Islamic principles, everyone involved can prosper.
Many companies that make cryptocoins apply Islamic principles without knowing it. While each company has a different protocol, the crypto manufacturer determines how many coins to make and how to protect the integrity of the public ledger. Usually, the protocols are equivalent to government regulations and other laws that support standard currency.
The company’s confidence in local currency affects their confidence in their own digital currency. They create supply based on the projected demand. For the most part, cryptocurrency blockchains are set up so it’s impossible—or at least incredibly difficult—to change how they operate.
While many companies apply Islamic ideology without realising it, only one cryptocurrency is 100 percent based on the principles. CaizCoin by Caiz Development GmbH is a utility token based on the Caiz Chain blockchain. It can be used as a medium of value and information transfer.
One of our founding principles is that transactions should be fast. If it doesn’t happen quickly, how can you know if the exchange is complete? This relates to the Islamic value of integrity—you must do what you say you will. All Caiz Coin transactions happen in a matter of seconds. We think that can solve many financial troubles facing the world today.
Another way Caiz Coin applies Islamic principles is by helping the less privileged. We want to support social welfare and we’ve partnered with NGOs to benefit social causes. Islamic principles don’t just help buyers and sellers, they help the entire planet.
Are these ideas unique to Islam? No, but Islamic principles are necessary to make the crypto financial world a better place.