Cryptocurrency Framework Diagnostics from Islamic Finance Perspective: A New Insight of Bitcoin System Transaction

Abstract

This paper analyses the operation of cryptocurrency system in perspective of Islamic finance. The purpose of this study is to evaluate the cryptocurrency framework whether it is meet the Islamic Finance rule. In addition, this study performed in providing the Islamic minded investor a proper information regarding investment in Bitcoin. Cryptocurrency is a digital currency in which encryption techniques that implement to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank. A transaction is a transfer of Bitcoin value that is broadcast to the network and collected into blocks. A transaction typically references previous transaction outputs as new transaction inputs and dedicates all input Bitcoin values to new outputs. This cryptocurrency has no physical form and exists only in the network. Bitcoin also has no intrinsic value in that it is not redeemable for another commodity, namely gold. Then, this study evaluates the framework according to Islamic Finance rule. The bitcoin account holder is anonymous. Therefore, it is difficult to track the real account holder if any suspicious activity occurs. In addition, the value of Bitcoin is unstable because of high volatility. Bitcoin also suffers variance in perceptions of Bitcoin's store of value and method of value. All of these three conditions contribute to uncertainty in transaction framework of Bitcoin. As a conclusion, Bitcoin transaction is classified as a transaction with high uncertainty (gharar).

The Sharia Compliance of Gold-Backed-Cryptocurrency: Analysis of Volatility and Risk

“…This shows that investing in DGX possesses high risk. From the figure, we can conclude that although one of money criteria's in Islam is asset based [4], DGX and GLC cannot be alternative for the sharia-compliant cryptocurrency. Figure 4 shows the return volatility of the biggest cryptocurrency i.e Bitcoin.…”

“…Bakar (2017) [4] examines the framework, cryptocurrency especially Bitcoin in the perspective of Islamic finance, his research provides an overview of several things in cryptocurrency (in this case Bitcoin) that are incompatible with Islamic principles, including the aspect of gharar which is widely contained in cryptocurrency. Bitcoin's value is not tied to real assets or government regulations and laws, and there is a risk of being hacked and there is no clarity about the real account holder.…”

Digitalization, Innovation and Sustainable Development: An Evidence of Islamic Finance Perspective

“…The applied tactic in cryptocurrency is known as the blockchain. A blockchain is an open, circulated ledger that can record transactions between the parties proficiently in a verifiable and perpetual way (Reid and Harrigan, 2013;Bakar et al, 2017).…”

Challenges of the Bitcoin in the Arabic Countries

“…According to previous reasons, Bitcoin is compatible with case uncertain (Gharar,) which is prohibited in Islamic trading rules. Thus, Bitcoin is unacceptable from the Islamic perspective (Bakar et al, 2017). ).…”