Growing awareness of halal cryptocurrencies is ushering in greater acceptance of Sharia-compliant decentralized solutions, driving further mainstream adoption.
Companies such as Swiss-based cryptocurrency developer Islamic Coin (ISLM), Malaysian fund manager Halogen Capital, and Bosnia and Herzegovina-based cryptocurrency exchange Biokript have been at the forefront of this movement, fueled by the constant growth of Islamic financial assets.
โThe global Islamic finance industry is expected to experience significant growth in the coming years and sukuk issuance is expected to grow substantially. This increase will naturally drive demand for halal digital assets,โ says Mohammed Al Kaff AlHashmi, co-founder of HAQQ and Islam Coin. Salaam Gate.
Gateway to Web3
As the native digital currency of the HAQQ blockchain, a platform dedicated to fostering a Sharia-compliant financial ecosystem, ISLM has created a community of Muslim investors comprising more than 1.5 million members. HAQQ has also gained significant momentum with 2.8 million accounts created.
ISLM allows Muslim investors to participate in Web3 and, by extension, decentralized finance, knowing that their investments are free of Riba (interest) and other prohibited activities. The cryptocurrency can also be used to purchase non-fungible tokens (NFTs) (blockchain-based tokens) on Bazaar.Art, HAQQ's NFT marketplace.
Blockchain is a decentralized, immutable ledger that facilitates secure transactions over a peer-to-peer network. Blockchain and cryptocurrencies have given rise to decentralized finance (DeFi), an emerging financial model that leverages distributed ledger technologies to offer services such as lending, trading, and investment.
โThe HAQQ blockchain and ISLM offer a transparent and traceable technology solution designed to support Sharia-compliant finance and the halal ecosystem. Even traditional halal and sharia financial institutions lack this level of transparency and traceability,โ says AlHashmi.
โMany useful use cases and products are being built on top of our technology: Shariah-compliant lending, trade finance, halal certification, cryptocurrency exchange, tokenization of real-world assets, and many more.โ
Since its launch in 2021, ISLM has gained listings on centralized exchanges such as Kucoin, making it available to a wider audience. It has also integrated with decentralized exchanges such as Sushiswap and Uniswap, making it easier to participate within the decentralized financial ecosystem.
A variety of projects are planned to broaden investment horizons for Muslim investors and traders, and other tokens will be launched through community projects on the HAQQ chain. These include solutions such as microfinance, Zakat, donations, and an upcoming gold-backed stablecoin.
โBlockchain technology offers exciting possibilities to develop innovative Shariah-compliant financial products. We hope to see new use cases emerge, such as tokenized Sukuk tokens that represent ownership of real-world halal assets or decentralized finance products based on profit-sharing models,โ says AlHashmi.
Halal cryptocurrency trading
Biokript, a cryptocurrency exchange that claims to be Sharia-compliant, is also working to make digital assets accessible to Muslim investors.
โMany Muslims are interested in participating in the cryptocurrency market, but face challenges due to the lack of Sharia-compliant platforms. Biokript fills this gap by providing a secure and compliant environment for trading halal digital assets,โ says Adnan Alisic, CEO of Biokript. Salaam Gate.
Incorporated in the US in 2023 and headquartered in Bosnia and Herzegovina, the hybrid trading platform combines the best features of centralized and decentralized exchanges to address existing inefficiencies.
Traditional centralized exchanges lack trust due to their custodial nature, where users entrust their funds to a single entity, with the potential risk of loss or mismanagement of funds. In contrast, decentralized exchanges lack a central authority to vet projects, creating potential scam risks.
โBiokript's hybrid model aims to mitigate these issues by integrating the trust and security features of centralized exchanges with the transparency and autonomy of decentralized exchanges. This approach seeks to improve user trust and security while maintaining transparency and accessibility in the business process,โ says Alisic.
Following its incubation with global accelerator Faster Capital in late 2023, Biokript plans to launch soon on different blockchain platforms to expand its reach, including the Solana network.
Receiving the approval of the 'Shariah'
As concerns still remain regarding the alignment of cryptocurrencies with Islamic financial principles, ISLM has validated its Shariah compliance by securing a Fatwa, which has classified ISLM as a digital asset within the blockchain and crypto landscape. It also formed a Sharia board to ensure that its ecosystem complies with Sharia guidelines.
The board is also part of the company's Shariah Oracle, an on-chain registry of halal certificates. This registration provides smart contract developers and Web2 companies a way to demonstrate their ethical relevance to Muslim users by listing their products and services on the Haqq Wallet.
โDue to the permissionless nature of blockchain, anyone can run a project on HAQQ, whether it is Shariah compliant or not. But, to receive a Shariah compliance mark, you must go through Shariah Oracle procedures, including the community and Shariah Board review stages. Once a project passes these checks, it is whitelisted as a Sharia-compliant project,โ explains AlHashmi.
Meanwhile, all cryptocurrencies listed on Biokript are carefully vetted to ensure Sharia compliance, and the platform strictly avoids listing tokens associated with activities prohibited by Islamic law, according to Alisic.
โThere is no margin trading or leverage, and the platform strictly avoids activities prohibited by Islam, such as interest-based trading or gambling.โ
The exchange platform has not gone through formal certification for Shariah compliance itself, but Alisic emphasizes that as a certified Islamic scholar, he ensures compliance with halal principles in the cryptocurrency space.
bumpy road
Despite all the progress in the Shariah-compliant crypto landscape, it is not all smooth sailing as the debate over crypto compatibility with Islamic principles is ongoing.
โThe crypto space, in general, faces evolving regulations. For Shariah-compliant cryptocurrencies and decentralized finance, the picture is even less clear. We constantly engage with regulators and industry leaders to promote clear and well-informed regulations that enable innovation while respecting Islamic principles,โ says AlHashmi.
Since many concepts in the crypto space are still relatively new to users, and Islamic decentralized finance is even less familiar, it is crucial to educate the global Muslim community about cryptocurrencies and their compatibility with Islamic finance. The newness of this space also makes it difficult to find skilled developers who understand both decentralized finance and Islamic finance to help build a Sharia-compliant blockchain ecosystem.
What awaits us?
General adoption of cryptocurrencies has accelerated in several Muslim-majority countries, indicating a certain level of consumer readiness. Cryptocurrency ownership, as a percentage of the total population, reached 30.4% in the United Arab Emirates, 11.37% in Saudi Arabia and 2.95% in Malaysia, according to digital currency payments company Triple -A, based in Singapore.
Kuala Lumpur-based Halogen Capital hopes to grab a slice of this growing market with its newly launched Sharia-compliant bitcoin fund, regulated by the Securities Commission Malaysia and backed by Islamic finance consultancy Amanie Advisors. The minimum initial investment is 10,000 Malaysian Ringgits.
Looking ahead, Biokript's Alisic expects more Muslims to enter the Sharia-compliant crypto space as awareness of the benefits of blockchain technology increases.
โThe Islamic finance sector represents a huge market with significant growth potential. If even a small portion of this market adopts cryptocurrencies, it could have a substantial positive impact on the industry. โContinued education and dialogue within the Islamic community is essential for broader acceptance and integration of halal digital assets into mainstream finance.โ
