This essay gives an analysis of cryptocurrency as a new phenomenon in the modern global economic processes and legal institutions especially as it relates to Islamic financial institution and to be precise, in Nigeria. The prospects and the challenges of the virtual money is examine while sight is not lost of the position of Islam in relation to what actually constitute a means of exchange. In achieving this, this paper embarked on a voyage of discovery and thorough research was done based on existing literatures on cryptocurrency as it relates to Islamic Finance.
Keywords: Cryptocurrency, Islamic Finance, Prospects, Challenges, Nigeria.
Fintech (or financial technology) is the current driving force behind innovations in the financial services industry. Through the batter system, commodity money and Fiat money, the humanity has witnessed a great evolution in the financial world. Today, one of the most debated innovations is cryptocurrency, or digital currency, which uses blockchain technology to make a direct electronic payment between two people possible, without going through a third party (like a bank) or expensive intermediaries in order to save costs.
Globally, the use of virtual tokens (including virtual currencies) to raise funding and facilitate economic transactions has been on the rise in recent years.
 This has resulted in increased attention from financial services regulators. A number of financial services regulators have issued comments or consumer alerts setting out their regulatory status or position on virtual tokens and/or virtual currencies. This is especially relevant since the use of virtual tokens and currencies can be subject to risks arising from fraud, money-laundering and terrorist financing, as well as the observed volatility of the “value” of virtual currencies. 
 The issue of cryptocurrency needs the Sharia analysis not only to Know the position of Islam on it but to give an insight into the implications as well as what the future holds in relation to the digitalized money from an Islamic Perspective. Therefore, this paper looks into the concept of cryptocurrency in Islamic finance, its challenges and prospects with special emphasis on Nigeria.
The word “crypto” refers to the encryption or cryptography that the instrument is built on and then added to a blockchain database. The “currency” here refers to the recognition as medium of exchange amongst its users.
 The European Central Bank explains virtual currency in its published document as “a Crypto representation of value that is neither issued by a central bank or a public authority, nor necessarily attached to a fiat money or currency, but is accepted by natural or legal persons as a means of payment and can be transferred, stored or traded electronically”. Cryptocurrencies are digital or virtual currencies that are encrypted(secured) using cryptography. 
However, Different type of cryptocurrency available, but, these are the more well-known currencies in the market (Bitcoin, Ethereum, Bitcoin Cash, Tether, Binance Coin, Cardano, EOS). Bitcoin is the first virtual currency which created in 2009 by pseudonym Satoshi Nakamoto as decentralized digital currency that can be sent from user to user on the peer-to-peer bitcoin network without the need of intermediaries such as banks.
 The idea of Crypto monetary systems dates back to the early 1990s when several companies and programmers tried their hand at creating money meant to be exchanged virtually. Many of these early currencies struggled to find their footing due to prohibitive regulation, insufficient technology, poor security features, lack of adoption, and a slew of other issues. Just a few years ago, when its cost was many times less, experts estimated the capitalization of this cryptocurrency at USD 44 billion. Bitcoin appeared at the turn of 2008–2009 and one BTC cost USD 0.001, then in 2011 this rate reached parity origins of 1 BTC = USD 1, and later this rate reached more than USD 40,000 for 1 BTC
 Cryptocurrency in Islamic Finance: Permissible or not Permissible?
 Given the above analysis of the concept of Cryptocurrency, it becomes possible to evaluate and discuss whether it fulfils the conditions of commodity and currency under Islamic finance. The most famous type of cryptocurrency is Bitcoin. Therefore, the existing literatures as this research found, and especially fatawa (experts’ legal opinions) are generally concerned with bitcoin. However, the principles and arguments to determine any type of cryptocurrency are same. Therefore, the existing literature pertaining to Bitcoin specifically has benefits broadly with regard to cryptocurrency.
 Sharia being an all-encompassing and comprehensive legal system, has provided a deep jurisprudential approach to Fiqh Al-Mu’amalat (Jurisprudence of Commercial transaction). The principles and practices of Fiqh Al-Mu’amalat emanated from the Quran and the Sunnah, and other secondary sources such as opinions collectively agreed among Shariah scholars (ijma), analogy (qiyas) and personal reasoning (ijtihad). Some of these principles and practices are contained in the following Qur’anic injuctions. In Qur’an 2 V 228, Allah gave an outright prohibition on Riba (Usury) and enjoy legal fair deal in business where Allah says; O believers fear Allah and give up what is still due to you from interest (Usury), if you are true believers”. Similarly, the provisions in Qur’an (2:275) (276) and (3:130) etc, are very instructive on the prohibition of interest. Of notable effect is also the provision of Qur’an 5V 90 where Allah warned against gambling and involvement in trades that have speculation/ uncertainty as elements. In this verse, Allah says; “ O you who believe! Intoxicants (All kinds of alcoholic drinks) & gambling & Al-ansab and Al-Azlam (arrow for seeking luck of decision) are abomination of shaitan (Satan) handiwork. So avoid (strictly all) that abomination in order that you may be successful”. This principle also demands that any contract entered into should be freed from doubt risk and speculation. In other words, parties involved should have an in-depth knowledge of the transaction dynamics.
 These Qur’anic provisions and a host of other Islamic legal injunctions are the backgrounds and genesis upon which the need to carefully examine the position of cryptocurrency in Islam is premised. In order to establish the permissibility of cryptocurrency in Islamic banking and finance it is cogent we briefly discuss the concept of Money in Islam and make a balanced juxtaposition.
   Sharia emphasizes to treat money just for its basic purpose (i.e. as medium of exchange and measure of value). Other features of money under Sharia include; standard payment, portability and unit of account. However, Jurists and scholars have dissected money into two variants: Natural and customary money. Natural money is said to have an intrinsic value and is created to serve as a means of exchange i.e. gold and silver. On the other hand, customary money is a type of money that get the position of money due to custom and acceptability of people. This include; commodity money and Fiat money.
With argument back and forth, Islamic Jurists identified six elements of money in relation to what has been in use during the lifetime of the prophet and go on to juxtapose them with the current money widely in use (Fiat) and the currency of hot debate (cryptocurrency). These elements are; Money is either precious metals or food; 2) Money is abundant and widely available; 3) Money is durable and does not spoil or corrode; 4) Money has intrinsic value; 5) Money exists in creation and is made valuable by God; 6) Money functions as a medium of exchange.
Some experts on Islamic Finance have argued that even though some of the criteria of what is considered as money are not been met by cryptocurrencies, it has majority of these basic elements even as compared to Fiat money. These therefore, suggest that cryptocurrency (Bitcoin) fits into some of the benchmarks of what money is and logically, it can be deduced that cryptocurrency is more Islamic in nature when compared to fiat money despite the fact that the latter is widely used by both Muslim and non Muslim countries.
Generally however, the issue of cryptocurrencies in the Islam world has caused controversial reactions from Islamic scholars, but then we can see such situation the world over. There is no consensus on the issue of permissibility or otherwise of cryptocurrencies and no universal fatwa has so far been given which will be adhered to by the Representatives of the entire Islamic world. Opinions given so far are mere individual opinion though from revered people in the Islamic finance sector across the world.
Note also, that Sharia experts are into three on the issue of permissibility or otherwise of cryptocurrency. The first group of scholars is of the view that cryptocurrency is haram. The second group is of the view that cryptocurrency is permissible and is line with Sharia rules and the third one are the neutral scholar who still believe that research should be advanced before coming into a logical conclusion. These categories of scholars will be discussed in the further paragraphs.
  Back to Nigeria, the Central Bank of Nigeria issued a circular in February of 2021, ordering all banks and other financial institutions to cease their dealings with any cryptocurrency exchanges. The Order directed banks and other financial institutions to immediately close the bank accounts of persons involved in digital asset transactions. Defaulting banks are to face serious regulatory sanctions. The ban also prohibits banks from processing remittances for cryptocurrency exchanges. This prompted the Commission to halt its plans to regulate cryptocurrencies as securities under its scope.
As stated earlier and for the sake of emphasis, Most nations are starting to see cryptocurrency either as a welcome development or a threat to their economy. Many have echoed that crypto currencies are not valid legal tenders, and warned their citizen not to engage in cryptocurrency transactions. Nigeria, as a sovereign nation is not spare from this as indicated by her directive. However, that shouldn’t deter us from giving opinion and advancing research on the prons and cons of Cryptocurrency both in the conventional way and in the Sharia parlance because we know not what the future holds of cryptocurrencies.
Technological advances combined with dramatic economic and social changes are creating conditions for the emergence of new, virtual forms of money and credit. This reality as manifested, has brought us to the look on the Prospects and challenges in these virtual forms of money some of which Will be addressed below;
The increasing popularity of Bitcoin and cryptocurrencies generally can be attributed to the offering of attractive potential benefits to users and the removal of artificial barriers imposed by current financial institutions. There is no erosion of purchasing power due to inflation. It allows for true peer-to-peer payments anywhere in the world. Compared to traditional banking, it allows minimal transaction fees and processing time.
The blockchain mechanism of Bitcoin makes a direct electronic payment between two people without going through a third party like a bank or other intermediaries, thereby reducing transaction costs. The increased privacy enjoyed b y Bitcoin users is due to its reliance on the principles of cryptography (communication that is secured from the view of third parties) to validate transactions and govern the production of the currency itself.
   There are also a number of factors that might deter widespread use of Bitcoin, specifically, as mentioned earlier, Bitcoin is not endorsed by any government as legal tender, and thus fails to function as money. Bitcoin also does not enjoy the fiat currency’s network externalities; the price volatility of Bitcoin itself discourages its use as a medium of exchange; and the uncertainty of Bitcoin’s network security will discourage its wider use. Users will be exposed to a host of risks since the creation, trading or usage of virtual currencies including Bitcoins are not authorized by most central banks or monetary authorities, and without any regulation and insurance scheme.
News reports often highlight the general financial volatility surrounding Bitcoins. The volatile price behavior seems to suggest that the market for Bitcoin is currently being driven by speculative investors. The perceived growing demand for Bitcoin may not be due to increased transactions by traditional merchants and consumers but due to speculation. The value of Bitcoins is also not tied to an underlying fundamental such as gold, or the perceived basic soundness and stability of an economy and its governing institutions. It must be make known at this juncture that Nigeria was ranked third in the crypto trading market despite the level of linkage of our economy. All these risks have yet to be managed and so far there is no effective way to hedge the associated risks of volatility and low liquidity of Bitcoin. Most of the challenges adduced above are what the Shari’a experts that kicked against cryptocurrencies take into consideration.
However, the Shari’a experts that argued in favor of crypto were of the opinion that the core concept of Crypto currencies helped transform the financial system by giving it a better tool to integrate more integrity, transparency, and trust in it through the nature of Blockchain. Prof. A.A. Alaro, an advisory to the central bank of Nigeria on Islamic finance, in his own submission argued that it is not a criteria under Sharia that a monetary system must come with the involvement of a central authority as some people may claim that the decentralized nature of crypto currencies makes it impermissible but there are huge benefits in centralizing it. He argued further that while most of challenges and arguments against crypto currency are truth, they must be addressed as a problems to be solved and not as grounds for nullity and invalidity.
Given the above risks and benefits of cryptocurrency adoption, it is recommended that;
• Nigeria Government should scrutinize their financial regulatory guidelines and see how they can be adjusted to welcome this fintech revolution.
• It is equally recommended that cryptocurrency has a real link with the Nigeria economy as it is suspicious as well as dangerous to leave it unregulated in a country where its economy is not stable.
• More research is still needed in several areas concerning blockchain and Crypto currencies. Blockchain and its application is considered a new niche that needs more literature consisting of analyzing flaws and issues with applying it in today’s economy. Shari’a experts are therefore called upon to research continuously on it so as to create an edge for the Muslim Ummah.
• the Shariʼah compliant cryptocurrency should be backed by gold, as gold is historically more resilient than any fiat money, particularly in times of economic instability. Regulators should examine Onegram, a recently launched Shariʼah compliant cryptocurrency, and produce our own unique Shariʼah compliant national cryptocurrency.
• Individuals are warned to be extra ordinarily careful before venturing into cryptocurrency taking into cognizance the risks that associated with it. Its volatility for example, the recent fall in the market dealt a great blow on many investors.
Despite the fact that cryptocurrency is considered as an economic innovation, it is gradually occupying the center stage of the financial landscape as investors are gradually considering it as channel of investment. Though, this digital currency might absolutely fit into the conventional system but in the case of Islamic financial system cautioned is needed due to its ethical nature. That said, from the analysis presented, we can see that cryptocurrency is to a very large extent compatible to Islamic banking system and that Islamic finance opens room for innovation if well scrutinized and considered fit into the system the ultimate goal of which is to be beneficial to the society.
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