Ilkogretim Online - Elementary Education Online, 2021; Vol 20 (Issue 6): pp.

1880-1890
http://ilkogretim-online.org
doi: 10.17051/ilkonline.2021.06.179

Role Of Islamic Finance In The Face Of The Digital Currency

Revolution

Amal Essam AbdulKareem1, Hasnaa Attia Hamed Mohamed2, Karima Hassan

Mohamed Soliman3, Mona Aboul Atta Halim4, Walaa Magdy Esmeil Rezk5, Chayma
Mostapha Kraiem6

1,6College of Applied Studies and Community Service’ Imam Abdulrahman bin Faisal
University, Dammam - Saudi Arabia, Department of General Courses
2,3College of Applied Studies and Community Service’ Imam Abdulrahman bin Faisal

University, Dammam - Saudi Arabia,Department of Accounting

4,5 College of Applied’ Imam Abdulrahman Bin Faisal University, Dammam- Saudi Arabia,

Department of Financial Sciences

Abstract: For the past few years, there has been a significant increase in people’s interest
in digital currencies. Councils and conferences have been organized to bat the nature and
feasibility of digital currencies. Some argue that it's good to have the liberty to the current
directive deep pocket system in which the predominant part is played by banks while the
digital currency doesn't necessitate any bank account, imposition payment and auditing.
Some others dissent with these arguments and claim that any mode of payment other than
traditionally known instruments parallel as cash payment, TT, cheques etc. will open the
door to avoid impost and auditing, which in turn will make serious trouble to government
budget and the overall falloff in GDP. This probation uses theoretical, descriptive, and
sound systems of probation and so focuses ondefining the place of digital currency in the
fiscal system by determining the extent of its influence, reviewing the literatureon the
motif, comparing the characteristics of paper have and crypto currencies (using the
bitcoins as a prototype), Unveiling the Shariah Perspective of Digital currency and the
reality of digital currency trading in Islamic countries.

Keywords: Digital Currency, Digital Finance, Sharia’sView, Bitcoin, Islamic Banking,

Finance and Blockchain Management Systems.

Introduction
With the emergence of Bitcoin compromising the traditional currencies,the world saw
governments replying to it in multi forms. Some like Dubai legalized it and utilized its
emerging technology, ‘the Blockchain’ to establish plans for a smart megacity through some
even familiarized their own digital currencies like Venezuela. For muslims, another
problem of the “Halal or Haram” perspective is available which must be managed for
progress in the Muslim world. In many cases, multiplex experimenters have considered
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Digital Currency Revolution
Bitcoin as Haram on the accounts of vagueness and intolerable menace included, others
have expressed it as Halal publicizing it be even cleaner than the debt- rested ruling
currencies we use in present (Li et al., 2019; Böhme et al., 2015).
It should be noted that ‘Bitcoin’ usually means the system, while ‘bitcoin’ or BTC
generally means currency unit. Bitcoin encompasses an electronic, virtual currency with no
physical depiction including banknotes or coins(Bank, 2012; He et al., 2016; Shoshan et al.,
2021). The ecosystem of bitcoin encompasses a network comprising users in
communication with each other with the usage of the bitcoin protocol through the internet
as shown in Figure 1. This protocol is accessible as an open-source software application,
and it enables users to keep and hand over bitcoins to buy and sell goods, or to swap
bitcoins for other currencies. Bitcoins are produced within the network during the
handling of transactions in a bitcoin mining process.

Figure 1: How bitcoins work(Shoshan et al., 2021).

Anyone connected to the internet can produce bitcoins using free software available
for all operating platforms, as the production of this digital currency requires a certain
amount of work to produce a certain amount of money, and this amount is modified by the
main network site, so that it is not over-produced and without prediction.
Bitcoin is also traded through a decentralized network consisting of a large group of
nodes and direct links, these nodes represent the group of users participating in the Bitcoin
network, as in Figure (2).

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Digital Currency Revolution
Figure 2: Bitcoin is a decentralized network made up of a number of nodes(Shoshan et al.,
2021).

Bitcoin can only buy goods and services from the Internet (by people or sites that
accept it and deal with it), and it can also be converted into traditional currencies by
specialized sites or by people who want to get it and exchange it for traditional
currencies(Grinberg, 2012; Socol, 2020).
Notwithstanding, moving beyond Bitcoin, no significant literature is available to
guide Muslim investors in terms of the other digital currencies and reminders that subsist
like Ethereum, Litecoin, and Golem. Bitcoin or virtual currencies aren't physical plutocrats
which aren't controlled by banks, where the virtual currencies depend on the focal break
and the quashing of the purpose of banks as an interposer between the vendor and the
purchaser (Bakar &Rosbi, 2018; Dyhrberg, 2016). A virtual currency is a digital
representation of value that can be digitally switched and works as an instrumentality of
trade, a unit of account as well as a store of value, notwithstanding doesn’t have legal
tender status in any regimen. It isn’t issued or insured by any parliament and satisfies these
capacities just by understanding inside the network of junkies of the currency. It's
particular from ruling currency or “real currency”, which is the physical plutocrat that
makes up a country’s legal tender and particular from e plutocrat, which is a digital
representation of ruling currency. Virtual currencies are managed by their junkies as per
the guideline of distribution (Campbell-Verduyn, 2018; Urquhart, 2016). Virtual currencies
are portrayed by security, usability, what is further, the people who produce and switch
them help humanity what is further since they're creating their own currency (Kaur, 2019;
Yermack, 2017; Mettler, 2016). The most renowned pecuniary currencies are Bitcoin,
which comprises a digital address related to an electronic holdall. The holdall is an
electronic play when an individual necessity to convert the specific value from a Bit of coin
to someone else; he utilizes the alleged digital hand. This hand contains three
paraphernalia, the first is conversion letter when the Bitcoin is converted to another
envelope and the transfigurations go to the Bitcoin network and enter the declaration

1882 | Amal Essam AbdulKareem Role Of Islamic Finance In The Face Of The
Digital Currency Revolution
procedure and are saved in the Chain blocks which are called Blockchain (Cong & He, 2019;
Gandal et al., 2018).
It's known in dollars-and-cents aspects that there must be three conditions to be
known as a currency; the chief condition is to be a broker adequate for exchange with the
aim that the broker acknowledges it for their products. after the condition is to be a
measure by which the value of the commodity can be resolved. The third condition is to be
an inventory of wealth (Ahmed, 2018; Corbet, 2018; Fry & Cheah, 2016). Either bitcoin and
approximate digital forms of deep pocket fulfil the deep pocket related employments of
deep pocket- going about as mode of exchange, unit of record, and store of noteworthy
worth-and gain status as Islamic cash by being “standard cash”. Shariah notices standard
cash as being whatever increases deep pocket related status through wide avowal in the
open eye or by government order (Meera, 2018; Corbet et al., 2019). In Germany, digital
currency is supposed as legal cash and as correspondent qualifies as bitcoin Islam cash in
Germany. In countries, for exemplification, the US, Bitcoin needs authorized legal fiscal
status yet is feted for the portion at a variety of merchandisers, and accordingly qualifies as
bitcoin Islam standard cash. A portion of the purposes behind the rise of price are
enterprises in this currency (Pike, 2018; Luther, 2016). Multiplex nations have begun to
embrace it in the authorized spin, expanding new services areas by embracing them as
airlines, notwithstanding electronic shops what is else, deep pocket changers that exchange
currency, for illustration, bones to Bitcoin and can buy some of them from websites. Most
governments on the globe haven't yet embraced the Bitcoin currenciesforms as a currency
of exchange, yet not really multifold countries, for illustration, Germany and Japan have
routinely permitted Bitcoin to be switched and affirmed as a tack of payment. These
countries have interests in permitting the currency to switch and surmise, in the guideline
of switching and controlling the movement of this currency (Muedini, 2018; Haddad
&Hornuf, 2019; Pieters &Vivanco, 2017). Further, Bitcoin has turned into an eatery, lodges,
andshops around the world.

The Main Characteristics of Digital Currencies

The following are the main characteristics of digital currencies (using bitcoin as an
example):

• Decentralized exodus.
• Absence of the control.
• The primary distribution of bitcoins among dopeheads is carried out grounded on
competition whose criterion is a successful answer for sophisticated close
equations/ conundrums.
• They aren't backed by any asset.
• The maximum measure of exodus is limited (21million), the terms and volumes of
the current exodus are known to all actors of the system.
• It's insoluble to recover lost or stolen bankroll.
• It has a high degree of the facelessness of the dopeheads.
• They operate with full and transparent information for all dopeheads.
• They've like high deal speed.
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Digital Currency Revolution
 • There's no forced commission for Moneytransfer.
• Their deals presently are academic in nature in last cases.
• They're incapable to bar the social hierarchy.

The Risks and Drawbacks of Digital Currencies

This currency has threats and minuses, including the accompanying The price of Bitcoin is
dependent upon oscillation because of reasons, for representative, attacks, serious
antivenoms and the this of large stores that vend in Bitcoin (Hrnjic& Tomczak, 2020; Peters
et al., 2015; Beck et al., 2018). Likewise, in light of the fact that Bitcoin is customizing with
refined algorithms, which influences the programming with the impacts we cited, which
can’t be dealt with by people who complain to any party in light of the fact that there's no
particular substance liable for protests and claims in this currency. This currency is
managed by a network of junkies and programmers around the world whohave made a
network for them and are working in this currency. Despite the fact that Bitcoin is an open
network that any programmers can propose or bring or change on the program that the
dealers work for and the products they have, and this should be pains and professional
(Rehman, 2020; Gandal&Halaburda, 2016). Most importantly, the Islamic unmistakably
known as Sharia relies upon the Quran and denies certain exercises, for illustration, the
claim of specific distinction which is perceived as usury (Reba).
The International Monetary Fund’s officeholder board holding the first since
everlastingly exchange on Islamic Banking. Regardless of the way that distinction,
adventure, and proposition in Bitcoin and digital Money have continued taking off
overhead, there remains to create complication among Muslims concerning whether
Bitcoin and cryptographic types of Money fit in with Shariah law (DePietro, 2018;
Gandal&Halaburda, 2016; Makarov &Schoar, 2020).
Shariah law is an arrangement of principles sought after by Muslims according to
Quran and the Prophet Muhammad, and Islamic foundations stick to Shariah law-clear
grasp of digital Money and blockchain continue creating in criticalness as specialists
forcibly perceive that blockchain will change similarly the web changed media and
dispersing (Singhal &Rafiuddin, 2014; Walch, 2015; Lines, 2016). Either it's meat-and-
potatoes to comprehend the essential distinctness between a digital currency and a
remembrance so as to know what bone is investing in. Digital currencies are coins that are
explicitly made to be harnessed as digital currencies, as a medium of exchange (Schilling &
Uhlig, 2019; Hockett &Omarova, 2016). Actually, remembrances serve as a gathering
fundraising tool applied by alpha-ups associated with the digital sphere instead of
conventional finance raising ways, for specimen, throw capital. Souvenirs are discharged to
the public through a Virgin Coin Offering (ICO) likewise as shares are given by a Public
Limited Company (PLC) through a Virgin Public Offering (IPO).
The ultimate is precisely controlled while ICOs have been abused to pull off hustles
anteriorly. In nastiness of the fact that this is changing with nations, for representative,
America placing regulations on how these are directed, the fraud can without monumental
of a stretch be maintained a strategic distance from by due invariability, therefore it does
not conflict with Islam’s morals. The value of a token relies upon how the council who
issued it, in any case, is holding requests and performing. This can be viewed as having a
1884 | Amal Essam AbdulKareem Role Of Islamic Finance In The Face Of The
Digital Currency Revolution
share in a council, notwithstanding, with less right, for instance, no value, no state in the
inception-up’s choices and no state toward the path the genesis-up takes. This further
complies with the Islamic principles of an investor knowing regarding what they're buying
with no trickiness included. So, cryptocurrencies are digital currencies while a keepsake is
an asset much like a share (MacDonald et al., 2016; Dierksmeier&Seele, 2018). Above all,
digital currencies and souvenirs in themselves are Halal and others dig into sequestering
the Shariah-tractable and non-Shariah tractable types. Everything being equal, it's
preposterous to anticipate to assess each and every digital currency or memorial
notwithstanding by assaying the protocols that oversee every currency, the intended use
exemplifications of each currency and seeing whether the digital currency or memorial
being bored to cataract into certain areas, for illustration, Riba, this paper dives into the
angles that would make a cryptocurrency or token haram alongside its accessories, for
sample, volitions and futures contracts.

Digital Currencies from an Islamic Perspective

It can be stated presently that while academicians dispute whether digital currency is a
secure currency or not, Muslim scholars view it from a different perspective, i.e. the extent
to which digital currencies compose with Shari’ah principles. Multicolored opinions of
noted experts of Islamic finance, both proponents and opponents of digital currencies, are
available on the internet. The ensuing experts express their support for digital currencies
and that they believe in compliance of digital currency with the Shari’ah law.
Dr. Adnan Al-Zahrani,ex-chairman of the Shari’ah Supervisory Board of Al-Jazeera
Bank says" Digital currency is one of the types of currencies/ deep pocket that arose as a
result of the process of creating and developing deep pocket. In other words, at first, it was
an ordinary exchange, either gold and silverware coins, and either paper deep pocket and
virtual deep pocket, which are digital currencies. And this is normal".Dr MonzerKahf, an
expert on Islamic economics and finance, Professor at the Qatar Faculty of Islamic Studies
believes that bitcoin like any other currency is a deep pocket within its community and
shifting it with other currencies is clearly subject to the same conditions of shifting
currencies which are:
1) Exchange should be on the spot without credits and futures.
2) No crapshoots on currencies, i.e. exchange must have a real cause to buy or to deal
other than the idea of currency for currency.
Even though he accepts bitcoin as money due to his confidence in itsminimal not
until it's traded in the open market – like other currencies – the chances of manipulation
are high. Mufti Abdul Qadir Barkatullah, a member of the Sharia Committee in Al-Ryan
Bank, formerly the Islamic Bank of Great Britain says," I'm convinced that digital currencies
can be an effective tool for the additional development of Islamic finance". In addition, he
recalls the rule among Muslim scholars that any commodity that's perceived by society as a
means that can play the function of means of payment must be perceived as Money. On the
other hand, there are experts who oppose digital currencies. For example, Sheikh Imran
Hussain, one of the hot and famed Muslim scholars, believes that any currency that doesn't
have essential value cannot be considered as valid Money. Therefore-in his opinion-only
gold or flatware Money can meet the criteria of the Shari’ah. Professor Ahmed Kamel Midin
1885 | Amal Essam AbdulKareem Role Of Islamic Finance In The Face Of The
Digital Currency Revolution
Meera, the former elder of the Institute of Islamic Banking and Finance at the International
Islamic University of Malaysia, and the author of the book Islamic Golden Dinar, believes
that in order for the digital currency to be accepted in the Islamic monetary
industriousness, it must have a measure of value, which has to be a fiscal commodity.
According to him there must be a standard weight on paper notes or electronic currencies
to be accepted, and it has to be remediable with a standard weight like gold. Otherwise, it
isn't fair and it's edict have.12 Queries, in the format of Q&A about immorality of digital
currencies from Shari’ah perspective can also be introduce online in the" question- answer"
format at the following link http//www.islamweb.net/. 13 We reproduce below two
material questions with their corresponding answers.
3) Question What's the Shari’ah's view on buying bitcoins? Answer despite the fact that
there are a lot of unintended comportment around electronic deep pocket, correspondent
as volatility and enterprise, we cannot unequivocally enjoin the use of this deep pocket, as
the foregoing negative indexes in outside cases are before present in the demands.14 -
Question What's the opinion of the Shari’ah on the purchase and trade of electronic deep
pockets (bitcoins) and also mining? Answer" Anyone who has acquired an electronic deep
pocket in a legal way can use it, this is admissible. We before said in one of the foregoing
fatwas that the digital or electronic currency is different from paper deep pocket or
ordinary coins. Therefore, the purchase of these electronic Money is regarded as an
ordinary currency exchange".15 Notwithstanding, despite the consequence of fatwas and
expert opinions, they cannot be considered as good as the scientific study
Currency in Islamic shari'ah ordinarily should be touchable, which implies one can
view it as a plutocrat (Mal), it must be variable, and either it must be licit. Investigators of
shari'ah have three suppositions the first opinion, Bitcoin isn’t (Mal) and the venture has
not complained of Islamic shari'ah on the grounds that it's simply academic. The same
opinion, Bitcoin is not real Money yet it's digital means. The third opinion says the Bitcoin
is currency. Bitcoin in Islamic shari'ah so as to be (mal) it must have two gear (i)
desirableness and (ii) storability (Adam, 2017). All together for the Money to perform, the
coexistent conditions must be met so as to be open acknowledgement, as opposed to the
unique, to meet the debts and fiscal arrears. The most significant of these conditions are as
following:
• That the Money admitted general acceptance
• Simplicity of the unit of Money and its concinnity
• Relative stability in value
• Indivisibility
• Easy to carry and feathery
• Their incapability to damage fast
Bitcoin like other currencies has many highlights or characters, it isn’t palpable, it
doesn’t have an impulse rather than estimate, dependably doesn’t related to anybody to
issue it, it cannot save. So as to fund any game, you should know the prerequisite of Islamic
finance. There are many prerequisites that every entity that manages Islamic banks or
Islamic financial institutions should place into advisement which are as the following:
1. Prohibition of interest rate: Interest must be banned on obligation and ought not
to be approached to pay, to admit or promise to pay.
1886 | Amal Essam AbdulKareem Role Of Islamic Finance In The Face Of The
Digital Currency Revolution
 2. Giving a wrong idea or stamp (misdirecting): “Specialists shouldn't misdirect
their exchange abettors. Exchange abettors are capable of comprehending what
they buy, additional exchange abettors must have the option to take their own
calls in chance".
3. Real substance: Offering products and services should be through real or true
existent, not a virtual existent.
4. Islamic law (Shari'ah) is barred and prohibits Gambling.
5. Imperative to give a sum of Money to a charity or destitute people as a donation.

There are some principles that consider Bitcoin (halal) while others consider it
(haram). So far it has been demonstrated that there are few perspectives and highlights of
Bitcoin that are allowed of (halal). According to all the information over the study presume
that:
1. Trading in Bitcoin is free of interest rate (without riba) which is considered as
Islamic finance (halal), yet it's not physical material as Money (mal) can address,
accordingly it's not decent.
2. Islamic shari’ah does not agree to Bitcoin as a currency employed in deals,
dollars-and-cents transfer, trade, or business in light of the fact that Bitcoin is a
fake currency not real so it's (haram).
3. Most of the countries with the exception of Germany and Japan declined applying
Bitcoin as a currency since it's not authorized by any formal association on the
world, perhaps in the future under central banks responsibility and will be
allowed (halal) to use in Islamic banks.
4. It's opened the lobby for Money laundering or terrorist to transfer, change Money
without knowing whom the holder of it.
5. Its control of the (ghurar) the craving of the dealer to make a quick profit, which
gives the impress or addition the status of gambling, and that impress is banned
(haram) in Islamic shari'ah.
6. Also, it's Not allowed (halal) in view of no security or Guarantee, its unknown
currency, and it has high vitality and hazards.
7. It doesn’t have commanded the alphabet of Money (mal).

Conclusion
The reality of digital currency trading in Islamic countries can be summarized as; Bahrain,
UAE and Sudan are the countries that allow digital currency to be traded legally and these
countries; Egypt, Saudi Arabia, Jordan, Syrian Arab Republic, Oman and Palestine are the
countries that have legally prohibited digital currencies but not legal treatment and these
countries allow the trading of digital currencies legally, but Sharia prohibits the circulation
of these currencies (and suspended the prohibition until further study, which may indicate
the possibility of its approval later and that the circumvention is not conclusive). Qatar,
Algeria, Morocco, Kuwait and Libya are the countries that legally prohibit the circulation of
digital currencies and these countries legally prohibit the trading of digital currencies.
Finally, Somalia, Mauritania, Djibouti, Comoros and Tunisia are the countries that have not
yet decided on digital currency trading and these countries are neutral and have not yet
1887 | Amal Essam AbdulKareem Role Of Islamic Finance In The Face Of The
Digital Currency Revolution
taken a decision regarding the trading of digital currencies legally or legally, and the matter
is still under study, yet currencies are traded in them.

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