One such consideration that has not necessarily garnered as much attention is how religious institutions treat the nascent assets. Of particular note is an emerging conversation about cryptocurrency trading in the Muslim financial community, which some have argued should be prohibited due to its speculative nature.
According to Hejaz Financial Services, there are concerns that the lack of physical form and a “definite value” means cryptocurrency does not fall within Sharia-approved activity. “ … Transactions that do not take a physical form or have a definite value carry an element of uncertainty, wagering and speculation. In addition, the trading of cryptocurrencies often catalyses practices that are outlawed under Sharia law, such as gambling or fraudulent activity,” according to the Halal lending firm.
The conversation is part of a broader discourse regarding Islamic finance, which refers to the practices of individuals and businesses with respect to raising capital and investing within the bounds of Sharia–or Islamic–law. According to Investopedia, Islamic financial practices are often viewed as a “unique form of socially responsible investment.”
The Pew Research Center estimates there are approximately 1.8 billion Muslims in the world.
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Hejaz Financial Services, though, points out that while cryptocurrencies do not necessarily fall under accepted Sharia law as they exist now, they could still meet the needed criteria under the right circumstances. “ … cryptocurrencies may still have a place in the Islamic financial sector if they are traded as a commodity or digital asset, as long as they meet requirements and display a clear benefit,” according to the firm.
Taking the matter from theory to practice, Indonesian religious leaders have actually gone as far as banning the use of cryptocurrencies for Muslims within the country. “Many in the country oppose this fatwa, as interest in investing in cryptocurrency is rapidly growing throughout Indonesia, with nearly 6.5 million Indonesian residents investing in cryptocurrency as of May 2021,” adds Hejaz.
While cryptocurrencies have gained a lot of attention in recent months for the unique opportunities they present with respect to hedging inflation and decentralizing financial control, many remain skeptical of their viability from both a practical and moral standpoint. In addition to the religious objections raised by the Muslim community, many others have expressed concerns with the amount of energy it takes to mine the currencies.
For example, per data from the Cambridge Bitcoin Electricity Consumption Index, Bitcoin mining operations use approximately 124.2 terawatt-hours per year. To put that number in context, it is roughly the same amount of energy consumed by the country of Norway.
