A STUDY OF THE MECHANISM AND SHARI‘AH PARADIGM OF CRYPTOCURRENCIES IN CURRENT ISLAMIC FINANCE DEBATES (AL-‘AMLAH AL-MUSHFIRAH)

Abstract

There is a lot of discussion in the Shari‘ah-based financial system over whether cryptocurrency (al-‘Amlah al-Mushfirah) is lawful. From an Islamic standpoint, the debate starts with the question of the money's worth and purpose (al-Qimah al-Jawhariyah) and develops from there. From an Islamic standpoint, money must have certain qualities, including inherent worth, stability, and asset-based longevity. Since cryptocurrency and digital tokens raise questions about their location, value, and assertion in Shari‘ah, they might not meet this requirement. Peer-to-peer transactions that function independently of the central bank are made possible by the cryptocurrency. Cryptocurrency can be a "coin" that exists digitally; it is not tangible. Furthermore, it cannot be physically removed or withdrawn. Without actual possession, the owner can only give the money to other people. The financial sector benefits from the use of cryptocurrency, which is an intriguing aspect of money. The mechanism is based on a ‘Block chain’ that is out of the current modern financial system of fiat money. Meanwhile, fiat money is produced by the Central bank of each country; however, Crypto currency is based on a borderless system as it is not limited to any country, region or territory. No authority controls the money mechanism of Crypto currency. The value of Crypto currency is based on the block chain creation to store the data. The calculation is based on the algorithm, which is very much complicated. This is the mechanism of how the value of crypto currency is created. Then, the supply and demand of users can also lead to either the increase or decrease of the value of crypto currency. In the given context, Islamic finance debates the issue so far its legal position in Shari‘ah is concerned. This paper evaluates the concept, mechanism, function and legality of the Crypto currencies and analyses its legal position in an Islamic perspective. The analysis envisions its ‘speculative’ nature together with a review of the reputed Islamic Finance Institutions and experts.