CRYPTOCURRENCY IN THE LIGHT OF ISLAMIC FINANCIAL PRINCIPLES: CHALLENGES AND OPPORTUNITIES FOR SHARIAH COMPLIANCE

Abstract

The emergence of cryptocurrency as a decentralized digital asset has introduced profound transformations in the global financial landscape. Built on blockchain technology, cryptocurrencies challenge traditional notions of money, intermediaries, and governance. From an Islamic perspective, this transformation invites critical evaluation, especially regarding compliance with Shariah principles such as the prohibition of riba (interest), gharar (excessive uncertainty), and maysir (gambling). While blockchain technology offers transparency and trustlessness—values in harmony with Islamic finance—the volatility, speculative trading, and lack of intrinsic value in many cryptocurrencies raise ethical and legal concerns. Additionally, the decentralized and pseudonymous nature of cryptocurrencies presents challenges for regulatory oversight and zakat calculation.

This paper explores the interface between Islamic financial principles and cryptocurrencies, aiming to identify both the challenges and opportunities for Shariah compliance. It analyzes various scholarly perspectives on the permissibility of cryptocurrencies and highlights differing fatawa (Islamic legal rulings) issued across jurisdictions. Moreover, it investigates how smart contracts, decentralized finance (DeFi), and tokenization may serve as tools to promote Islamic financial inclusion and ethical investment.

The paper concludes that a nuanced and context-sensitive approach is necessary to determine the Shariah status of digital currencies. While some cryptocurrencies may be deemed compliant under specific conditions, others fall short of Islamic ethical and legal standards. The research underscores the importance of developing standardized Shariah guidelines and engaging with fintech innovations to harness their potential for the Islamic finance industry.