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SHARI’AH ANALYSIS OF

CRYPTOCURRENCY:

BITCOIN

Marjan Muhammad (PhD)

Head of Research Quality Assurance Office

ISRA

Shariah Fintech Forum (SFF) 2017 8 November 2017, Hilton Hotel, Petaling Jaya

of Research Quality Assurance Office ISRA Shariah Fintech Forum (SFF) 2017 8 November 2017, Hilton Hotel,

Content Outline

An Overview of Cryptocurrency Bitcoin from the Shariah Viewpoint Is Bitcoin a Commodity? Is Bitcoin
An Overview of Cryptocurrency
Bitcoin from the Shariah Viewpoint
Is Bitcoin a Commodity?
Is Bitcoin Money/Currency?
Is Bitcoin a Financial Asset?
Conclusion
from the Shariah Viewpoint Is Bitcoin a Commodity? Is Bitcoin Money/Currency? Is Bitcoin a Financial Asset?

An Overview of Cryptocurrency

3

Types of Cryptocurrency

1148 types which exist and spread in

more than 5633 markets

Total Market Capitalisation

USD 148.14 billion

Total Daily Trading Volume

USD 2.02 billion

The Largest Trading Volume and Market Capitalisation

Bitcoin has the largest cryptocurrency market share of 49%,

and present market value is

accounted at USD 4,348.99

of 49%, and present market value is accounted at USD 4,348.99 https://coinmarketcap.com , October 7 t

https://coinmarketcap.com, October 7 th 2017

4 Today’s figure

Types of Cryptocurrency

1273 types which exist and spread in

more than 6513 markets

Total Market Capitalisation

USD 200.809 billion

Total Daily Trading Volume

USD 5.29 billion

The Largest Trading Volume and Market Capitalisation

Bitcoin has the largest cryptocurrency market share of

60.8%, and present market value is

accounted at USD 7,326.39

60.8%, and present market value is accounted at USD 7,326.39 https://coinmarketcap.com , November 8 t h

https://coinmarketcap.com, November 8 th 2017

5

How Does Bitcoin Work?

5 How Does Bitcoin Work?
5 How Does Bitcoin Work?

6

Features of Bitcoin

Has no intrinsic value
Has no intrinsic value
Has no physical form; exist only in digital form
Has no physical form; exist only in digital form
Supply is not determined by central bank; stateless Not issued or controlled by a company
Supply is not determined by central bank;
stateless
Not issued or controlled by a company nor a
single person or organization; therefore, it has no
central point of failure

Bitcoin: Who Banned It?

7

Bitcoin: Who Banned It? 7 • “Bitcoin is not a legal tender of any country. Any
• “Bitcoin is not a legal tender of any country. Any transaction through Bitcoin or
• “Bitcoin is not a legal
tender of any country.
Any transaction
through Bitcoin or
any other crypto-
currency is a
punishable offense,”
• Bitcoin is strictly
banned on banks as
the central bank is
owned 70% by the
Chinese government
Central
Bank of
China
Bangladesh
Central
Bank of
Bank of
Thailand
Iceland
• On July 2013, ruled
bitcoin illegal because
of a lack of existing
laws
• In March 2014,
issued a statement
explaining legal
status of bitcoin:
purchasing them
violate the Foreign
Exchange Act

Bitcoin: Who Regards What?

8

Bitcoin: Who Regards What? 8 • Legally binding financial instruments & is a unit not expressed
• Legally binding financial instruments & is a unit not expressed in the form of
• Legally binding
financial
instruments & is a
unit not expressed
in the form of legal
tender
• Property
value for
payment of
equivalent value
for purchased
goods, rental fees
or services
Japan
German Federal
(Payment
Financial
Services Act,
Supervisory
Authority (BaFin)
being effective
June 2017)
Canada (Bill C-
31): Amendments
to Canada
Proceeds of
Crime (Money
Laundering) and
Terrorist
Brazil (Law No.
12, 865 ) –
provides for
creation of
electronic
currencies
including bitcoin
Financing Act
• Treat virtual
currency,
including bitcoin
• Financial asset
(not currency) that
will trigger tax
as money service
imposition on
business
gains

Who Accepts Bitcoin as a Mode of

9 Payment?

Who Accepts Bitcoin as a Mode of 9 Payment? Windows 10 Home = 0,0031
Windows 10 Home = 0,0031
Windows 10 Home =
0,0031
Who Accepts Bitcoin as a Mode of 9 Payment? Windows 10 Home = 0,0031

Content Outline

10

An Overview of Cryptocurrency Bitcoin from the Shariah Viewpoint Is Bitcoin a Commodity? Is Bitcoin
An Overview of Cryptocurrency
Bitcoin from the Shariah Viewpoint
Is Bitcoin a Commodity?
Is Bitcoin Money/Currency?
Is Bitcoin a Financial Asset?
Conclusion
from the Shariah Viewpoint Is Bitcoin a Commodity? Is Bitcoin Money/Currency? Is Bitcoin a Financial Asset?

Why Do We Need to Ascertain the

11 Ruling of Bitcoin?

ذخأ ام ءرملا يلابي لا ،نامز سانلا ىلع يتأي مارحلا نم مأ للاحلا نمأ ،هنم

A time will come when one will not

care about how he gets things, whether legally or illegally

when one will not care about how he gets things, whether legally or illegally Sahih al-Bukhari:

Sahih al-Bukhari:

Book of Sales & Trade

when one will not care about how he gets things, whether legally or illegally Sahih al-Bukhari:

12 What is the Status of Bitcoin?

12 What is the Status of Bitcoin? Commodity? Money/ Financial Currency? Asset? What is Bitcoin?
Commodity? Money/ Financial Currency? Asset? What is Bitcoin?
Commodity?
Money/
Financial
Currency?
Asset?
What is
Bitcoin?

13 Wealth

Criteria of wealth

Recognised by Shariah

as valuable & beneficial

Identifiable

Transferable

Can be owned

▸ Identifiable ▸ Transferable ▸ Can be owned Wealth (Mal) Commodity (Sil’ah) Financial Asset Money
Wealth (Mal) Commodity (Sil’ah) Financial Asset Money (Naqd) Commodity money (sil’ah thamaniyyah)
Wealth (Mal)
Commodity
(Sil’ah)
Financial
Asset
Money
(Naqd)
Commodity money (sil’ah thamaniyyah)

Content Outline

14

An Overview of Cryptocurrency Bitcoin from the Shariah Viewpoint Is Bitcoin a Commodity? Is Bitcoin
An Overview of Cryptocurrency
Bitcoin from the Shariah Viewpoint
Is Bitcoin a Commodity?
Is Bitcoin Money/Currency?
Is Bitcoin a Financial Asset?
Conclusion
from the Shariah Viewpoint Is Bitcoin a Commodity? Is Bitcoin Money/Currency? Is Bitcoin a Financial Asset?

Is Bitcoin a Commodity?
15

Specific criteria of commodity:

Must have an intrinsic value that can be

benefited from (i.e. muthman, NOT thaman)

value that can be benefited from (i.e. muthman, NOT thaman) ▸ Ibn Qudamah said: َ نْ

Ibn Qudamah said:

َ

نْ مِ ،

هِعِ ا

ونْ َ أ

َ

فِ لََِتخْ ا

َ

ل

ى

ع

،

ْ

لا م

ِ

َ

لا نْ مِ

نا م ْ ث َْ

َ

ِ

لْا ريْ غ وَهُ وَ.

ُ

َ

ْ

َ

م

َ

َ

ِ

ِ

ْ

لا

لا لا رِئا س و راَق ع لا و نا وَي ح لا و تِ اَبَّنلا

ضرْ

َ

ْ

ع عمْ

َ

َ

َ

ِ

ُ

َ

ج :

َ

ضورُ

ُ

ع

ْ

َ

ʿUrūd is the plural of ʿarḍ, and it refers to all the various

forms of wealth excluding media of exchange (athmān) [literally, the price in an exchange contract], including plants, animals, real estate, and all the other forms of wealth.

[literally, the price in an exchange contract], including plants, animals, real estate, and all the other

16

ْ ْ َّ ْ
ْ
ْ
َّ
ْ

لا نيَْذ للا ةِضَّ

فِ

ِ

ْ

لا و ربِْ

َ

ِ

ْ

تلا نَ يَْب

ْ

ْ

Is Bitcoin a Commodity? (Con’t)

Ibn Rushd said:

ْ

يتلا ضو رُع

ُ

لاَ

اهَ

ب عَ ا

فت َ

نلاا ْ

لا نَ يَْبوَ ،عُ اَفِتنْلِا لَ

:

ينعْ

َ

أ

-

ْ

لا

ةِضَّ

فِ

ِ

ُ ة َ ما َ َ م ُ

ل

ع

تلا نَ مِ

لا ل و َّ َ أ ا

ْ

ً

دِوصُ

م َ هنْ ُ مِ ُدوصُ

ْ

ق

ْ

لا

.

م

َ

اًن

فُ لََخِ

َ

ق م

َ

و ربِْ

َ

لوَّ َْ

لْا عضْ وَ لا ب اهَ

:

َ

ْ

ل ما م

ةِ

َ

ع لا

َ ُ

ب يِنعْ

ِ

َ أ

َ

و

نم دوصُ

،

َ

ل

َ

ق م

َ

لا

ُ

ْ

لا

هَن وكَ

َ

ْ

َ

ة ماَع م

م ث ا

َ

…between unminted gold and silver, the primary purpose of which is transactions, not direct benefit, and between ʿurūdthe

primary purpose of which, according to the original assignmentis the opposite of the intended use of gold and

silver; i.e., [direct] benefit, not transaction. What I mean by

transaction is their use as the prices [of all other things].

i.e., [direct] benefit, not transaction. What I mean by transaction is their use as the prices

Commodity vs Bitcoin: An Analysis

Characteristics of Commodity

Bitcoin

Recognised by Shariah as valuable

Recognised by Shariah as valuable

Must have an intrinsic value that can be benefited from

Must have an intrinsic value that can be benefited from

Identifiable

Identifiable

Transferable

Transferable

Can be owned

Can be owned
as valuable Must have an intrinsic value that can be benefited from Identifiable Transferable Can be

18

Commodity? Currency? Financial Money? Asset? What is Bitcoin?
Commodity?
Currency?
Financial
Money?
Asset?
What is
Bitcoin?

Content Outline

19

An Overview of Cryptocurrency Bitcoin from the Shariah Viewpoint Is Bitcoin a Commodity? Is Bitcoin
An Overview of Cryptocurrency
Bitcoin from the Shariah Viewpoint
Is Bitcoin a Commodity?
Is Bitcoin Money/Currency?
Is Bitcoin a Financial Asset?
Conclusion
from the Shariah Viewpoint Is Bitcoin a Commodity? Is Bitcoin Money/Currency? Is Bitcoin a Financial Asset?

Is Bitcoin Money/Currency?
20

Specific criteria of money

Unit of account: Bitcoin has its unit of account

decimal point)

(i.e. 8

Medium of exchange: Accepted as a mode of payment within the virtual community

Store of value: Holds the values that would appreciate and depreciate. Reliability of Bitcoin (BTC) as medium of exchange indicate the ability of BTC to store value because it can be used to measure the value of goods and debt in

relation to time. However, BTC value is currently very

volatile; hence limiting its ability to be a store of value

debt in relation to time. However, BTC value is currently very volatile; hence limiting its ability

Is Bitcoin Money/Currency? (Cont’d)
21

Ibn al-Taymiyyah said:

ُهُع جرْ م لْ َب يعِ رْ شَ

ْ

َ

َ

لَ

و َ يعِبْ

لَ

ط َ د

َ لِا ْ يِف

ح َ ُه ل فُ

ُهَّن

رعْ َ ُي ا

َذ و

َ

َ

؛

مَف رُ اَنيدِلا مهَ ُ رْ دِلا

ْ

امَّ َ أ و

َ

َ

و َ

؛هِ ب ُدوصُ ق م

ِ

َ

لا قُ

ل

َ

ْ

َّ

عَتَي

لصْ

ِ

َ

لِِ كَ لِ

حلاَ

طصْ لااوَ ةَداَع

ُ

كَي نْ

َ

أ ضُ

ْ َ

ْ

لا ى

لإ

رَغ

َ

لا لْ َب

ْ

قُت

لاَ رُينا

؛

نَّدلاوَ مها

َ

ُ

ْ َ أ تْ

ث

م

َ

َ

ناكَ

َ

ْ

رَّدلاوَ ه

ا

َ

ذهَ لوَ اهَ

هسِ فَن ا

ا

َ

ب

َ ِ

ه

ب نَ و

ب ل

ُل ماَعَتَي

َ

امَ ل راَيعْ م نَ و

ا

ً

َ

َ

اًنا

ماَعَّتلا ى

ُ

َدوصُ

ليسوَ يه لْ َب اهَ س ف نل ُدصَ

لإ ة

ْ

ْ

ق

لا نَّ

م

َ

َ

إَف لا ومْ

ِ

َ

ِ

ِ

َ

عُ اَفِتنْلِا

َ ْ

لِا رِئا س فِ لََ خِ ب

ِ

َ ْ لِا رِئا س فِ لََ خِ ب ِ As for gold and silver coins,

As for gold and silver coins, there is no known natural definition for them, nor is there a Shariah definition. Instead, referral is to be made to custom and [societal] agreement.

That is because the basic rule is that they are not intended for themselves. Instead, the

objective [of their use] is to be a measure [of value] for what is being transacted. Gold

and silver coins are not intended for themselves; rather, they are media of exchange. This is why they are the prices [of all other things], as opposed to all other

forms of wealth, which are intended for the benefits that reside in them.

[of all other things], as opposed to all other forms of wealth, which are intended for
لَ Is Bitcoin Money/Currency? (Cont’d) 22 ⬩ Imam Malik said: ▸ ةكَّس اهَ ل نَ

لَ

Is Bitcoin Money/Currency? (Cont’d)
22

Imam Malik said:

ةكَّس اهَ ل نَ وكَُت ىَّتحَ

َ

َدوُلجُ لا مهُ نيَْب اوزُاجَ َ أ سا َّ نلا نَّ َ أ وْ لوَ

ْ

ْ

َ

َ

َ

َ

َ

،

ق ر لا

ِ

و ب لَ و بِ هَ َّ ذلا ب ًة رظِ َن ا هيِف ريْخَ

ِ َ

ْ

ِ

َ

ِ

َ

َ

َ

ْ

َ

ً

ة رظ ن ق روَ لاوَ بهَ َّ ذلا ب عَ اَبُت نْ َ أ اهَ ُتهْ ركَ ل نيْعَ وَ

“There is no good in the sale of fulūs for gold or for silver by deferred payment. And if the public were to accept leather [as a medium of exchange] and turn it into minted

money, I would detest its sale for gold and silver for deferred payment.”

. ًة رظِ َن ريِناَنَّدلا ب

ِ

َ

ِ

لَ

و ةِضَّ

َ

فِ و بِ هَ َّ ذلا ب سو ُ ل ُ ف لا زُ وجُ َت لَ و ، نيْ س ب سٌ لَف زُ وجُ َي

ْ

لا

َ

ِ

ُ

ْ

َ

ِ

َ

ْ

لَف

ِ

ْ

لَ

It is not permissible [to exchange] one base-metal coin for two base-metal coins. And it is not permissible [to exchange] base-metal coins for gold or silver or for gold

coins on a deferred basis.

Another condition for money: WIDELY AND COMMONLY ACCEPTED by the society

or for gold coins on a deferred basis. ▸ Another condition for money: WIDELY AND COMMONLY

Is Bitcoin Money/Currency? (Cont’d)
23

Sheikh Taqi Usmani & Prof Monzer Kahf added

another condition:

LEGAL TENDER conferred by the government

condition: ▸ LEGAL TENDER conferred by the government ▸ Objective: ▸ to regulate inflation and deflation

Objective:

to regulate inflation and deflation risk that may harm the value of the currency and the

underlying purchasing power it holds.

inflation and deflation risk that may harm the value of the currency and the underlying purchasing
ْ َّ
ْ
َّ

َّ

لا راَيعْ م

ُ

لا وهُ

َ

نُ

ثلا و

م

َ

َ

Is Bitcoin Money/Currency? (Cont’d)
24

This condition is line with Ibn Qayyim’s statement which says:

لاَوَ عُ فَترَْي لاَ ا

طوُبضْ م اًدوُدحْ م نَ و

َ

َ

ً

كَي ُ نْ

عيمِ ج ل ا لْ َب ،تِ ا

ُ

َ

َّ

َ

ْ

ب لا هِِ ب رُ بَتعْ َن نٌ

ِ َ

ِ

َ

م

ٌ

ْ

عي م

َ

َ

َ

َ

لَ

و ،ةَدحِ ا و

َ

َ

ة

َ

َ

َ

ل

َ

َ

ِ

َ أ بُ جَيَف ، لا ومْ لِا مي قَت فُ رعْ ُي هِِ ب يذِ

ِ

ِ

َ

َ ْ

ُ

ْ

و

ِ

َ

ُ

َ

َ

ْ

ٌ

َ ْ

َ

َ

ِ

ُ َّ

َ

ِ َ

ْ

َّ

فِخَ نْ َي و عفَِترْ َي نُ م َّ ثلا نَ اكَ و ل ذإ ْ ؛ ضُ

َ

ُ

َ

َ

َ

ْ

َ

ُ

ف خَ

َ

َ

َ

َ

َ

ٌ

ُ

ِ

ُ

ْ

ْ

نَي

لإ نُ كِمُْي لَ كَ لِ َذ و ، ةمَّا ع ٌ ةَّي رورُ ض ة جا ح تِ ا عي ب م لا هِِ ب نَ ورُ بَتعْ َي ن م ث ى لإ سِ اَّنلا ة جا ح و ، ع لسِ

َ

ث اَن ل نْ كَي م ل ع لسِ لاكَ ضُ

لا ح ى ع رُّ مَِتسْ َي و ، ءاَيشْ لِا هِِ ب م وَقُت ن ث

ُ

م ب لإ نُ و كَي لَ كَ لِ و ، ميقِ لا هِِ ب فُ رعْ ُت رعْ سِ

َ

َ

ِ

َذ

َ

ة

َ

َ

ب ِ

هِ ريَْغ ب وهُ مو ُ قَي

َ

ُ

ِ

ِ

The thaman (price) is the standard by which the value of [all other forms of] wealth is known. It is obligatory that it be precisely defined and regulated so that it does not rise and fall. That is because if what serves as the price were to rise and fall as commodities do we would not have a price [standard] by which to appraise what is being sold. Instead, everything becomes a commodity. People’s need for a price by which all items of sale are appraised is essential and universal. That is not possible except by a price (siʿr) by which value can be known. And that is not possible except by a medium of exchange (thaman) by which things can be valuated, and it must remain in one state and not be measured in terms of something else.

thaman ) by which things can be valuated, and it must remain in one state and

Money/Currency vs Bitcoin: An Analysis

Characteristics of Money/Currency

Bitcoin

Unit of account

Unit of account

Medium of exchange

Medium of exchange

Store of value

Store of value

Widely and commonly accepted

Widely and commonly accepted

Legal tender

Legal tender
Bitcoin Unit of account Medium of exchange Store of value Widely and commonly accepted Legal tender

26

Commodity? Currency? Financial Money? Asset? What is Bitcoin?
Commodity?
Currency?
Financial
Money?
Asset?
What is
Bitcoin?

Content Outline

27

An Overview of Cryptocurrency Bitcoin from the Shariah Viewpoint Is Bitcoin a Commodity? Is Bitcoin
An Overview of Cryptocurrency
Bitcoin from the Shariah Viewpoint
Is Bitcoin a Commodity?
Is Bitcoin Money/Currency?
Is Bitcoin a Financial Asset?
Conclusion
from the Shariah Viewpoint Is Bitcoin a Commodity? Is Bitcoin Money/Currency? Is Bitcoin a Financial Asset?

28 Is Bitcoin a Financial Asset?

28 Is Bitcoin a Financial Asset? ▹ Financial assets: resources over which ownership rights are enforced

Financial assets: resources over which ownership rights are enforced, and from which future economic

benefits may flow to the owner.

cash/money

an equity instrument of another entity

a contractual right

to receive cash or another financial asset from another entity to exchange financial assets or financial liabilities with another

entity under conditions that are potentially favourable to the entity

assets or financial liabilities with another entity under conditions that are potentially favourable to the entity

Is Bitcoin a Financial Asset? (Con’t)

29

Is Bitcoin a Financial Asset? ( Con’t ) 29 ▹ Cash/money: ▸ Present value vs future

Cash/money:

Present value vs future value

e.g. MYR 100 billion on t1 vs MYR 120 billion on t120

Investment through ‘investment account’

vs future value ⬩ e.g. MYR 100 billion on t1 vs MYR 120 billion on t120

30 Is Bitcoin a Financial Asset?

30 Is Bitcoin a Financial Asset? ▹ An equity instrument of another entity : ▸ e.g.

An equity instrument of another entity:

e.g. shares

30 Is Bitcoin a Financial Asset? ▹ An equity instrument of another entity : ▸ e.g.

31 Is Bitcoin a Financial Asset?

A contractual right:

to receive cash or another financial asset from

another entity

receive cash or another financial asset from another entity  e.g. sukuk ⬩ to exchange financial

e.g. sukuk

to exchange financial assets or financial liabilities with another entity under conditions

that are potentially favourable to the entity

e.g. Sale of sukuk at the secondary market, sale of debt

conditions that are potentially favourable to the entity  e.g. Sale of sukuk at the secondary

Where to Exchange Bitcoin?

32

Top 10 Bitcoin Exchanges
Top 10 Bitcoin
Exchanges
Where to Exchange Bitcoin? 32 Top 10 Bitcoin Exchanges
Where to Exchange Bitcoin? 32 Top 10 Bitcoin Exchanges

Bitcoin vs Financial Asset: An Analysis

Characteristics of Financial Asset

Bitcoin

Value is dependent on the time it is priced

Value is dependent on the time it is priced

Recognised by Shariah as valuable

Recognised by Shariah as valuable

Identifiable/Transferable

Identifiable/Transferable

Can be owned

Can be owned

Store of value

Store of value

Must be backed by underlying assets/Shariah compliant investment activities

Must be backed by underlying assets/Shariah compliant investment activities
Can be owned Store of value Must be backed by underlying assets/Shariah compliant investment activities

34

Commodity? Currency? Financial Money? Asset? What is CC?
Commodity?
Currency?
Financial
Money?
Asset?
What is
CC?

Content Outline

35

An Overview of Cryptocurrency Bitcoin from the Shariah Viewpoint Is Bitcoin a Commodity? Is Bitcoin
An Overview of Cryptocurrency
Bitcoin from the Shariah Viewpoint
Is Bitcoin a Commodity?
Is Bitcoin Money/Currency?
Is Bitcoin a Financial Asset?
Conclusion
from the Shariah Viewpoint Is Bitcoin a Commodity? Is Bitcoin Money/Currency? Is Bitcoin a Financial Asset?

36

So…what is Bitcoin?

Commodity? Money/Currency? Financial asset?
Commodity?
Money/Currency?
Financial asset?
36 So…what is Bitcoin? Commodity? Money/Currency? Financial asset?
36 So…what is Bitcoin? Commodity? Money/Currency? Financial asset?

37

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37 THANKS ! Lorong Universiti A, 59100 Kuala Lumpur, Malaysia General Line: +603-7651 4200 Fax: +603-7651

THANKS!

Lorong Universiti A, 59100 Kuala Lumpur, Malaysia General Line: +603-7651 4200

Fax: +603-7651 4242

Email: info@isra.my