DeFi can be halal, but not DOGE? Decentralization of Islamic Finance – Cointelegraph Magazine

While Islamic scholars have long grappled with the question of whether cryptocurrency is halal, what if it is really permissionless fiat?

Islam has strict financial regulations and in the past defined money as a commodity with intrinsic value – including gold, silver or salt. Waseem Mamlouk of DeFi platform Nimbus argued that government-issued fiat currencies have no intrinsic value and may not be compatible with a careful interpretation of Sharia law. This will pose a problem for the burgeoning Islamic financial industry, which aims to make financial profits under religious law.

Mined cryptocurrencies have intrinsic value because they cost a certain amount to be produced – but digitally printed fiat currencies on balance sheets have no intrinsic value.

Mamlouk sees cryptocurrencies as a possible alternative. As Vice President of Capital Markets at Nimbus, Mamlouk is working to have parts of the company certified as Sharia-compliant in order to reach a growing pool of investors looking to invest. This will certainly be profitable, but Mamlouk also sees Islamic finance as a way to encourage responsible long-term investing.

Mamlouk’s view that fiat money has no intrinsic value is certainly a controversial issue and would have a major impact on the Islamic financial industry if his assessment were more widely accepted. In fact, he says Fiat is not halal. He is not the first to question the incompatibility of Fiat with Islamic finance, as the desire to return to the gold standard – as in the classical Byzantine period – has long been scientifically debated.

“So if we talk straight away about someone making Sharia-compliant funds in dollars, it doesn’t make sense at first. However, since cryptocurrencies are being mined, it really makes sense. “

It was an honor for me to participate in the panel discussions on the topic of Disruption of Challenger Banks and FinTech at the 1st International Islamic Fintech Summit 2019, chaired by. to participate @ashurst London. Great ideas / opportunities for FinTech and crypto in Islamic finance. pic.twitter.com/oJKi4eKaSo

– Dr. Kingsley Udofa (@DrKUdofa) 15th February 2019

Islamic finance

Mamlouk believes that cryptocurrencies are key to better implementing Islamic banking. In short, this relates to financial and banking operations in accordance with Islamic religious teaching. Among these religious teachings, the central one is prohibition riba, often referred to as usury or interest.

Since interest is a large part of the current DeFi landscape, Muslim DeFi needs bespoke solutions regardless of interest. In Islamic banking, Mamlouk explains that banking fees sometimes crowd out income that would otherwise come from interest, but he’s not a fan.

“Banks like to play with people with different words and concepts. “We charge you, but we don’t charge you interest” – we know what that is. “

Islamic economics embraces the general idea that money must be made through fair and legitimate work and not through unfair exploitation, which is often compared to labor theory of value. For the same reason, the money received for work must have real and intrinsic value.

Though there are no exact numbers The economist has estimated that Islamic Finance is $ 2 trillion a year and will “reach $ 3.69 trillion by 2024” according to Gulf Business. Looking at the world population of Muslims, according to the Pew Research Center, “growth of 70% is expected – from 1.8 billion in 2015 to nearly 3 billion in 2060. Pew Research will certainly continue to attract capital to the“ sensitive ”financial services.

While Islamic finance has been around for much longer, it is not the brother of the crypto industry. Both are fast growing financial industries – each controlling about 1% of global wealth – and expect much larger market shares in the years to come.

What are the rules

Much of the rules of the Islamic banking center revolve around the concept of riba, commonly known as usury. That makes you pay or earn interest haramwhich means forbidden. “You don’t get any interest on a certain amount of money you deposit,” says Mamlouk.

There’s a ban on selling things you don’t own, he says, which means short selling, derivatives, and possibly even day trading stocks are out of the question as common stocks don’t get paid until the end of each business day. , and a person may end up reselling stocks before “getting” them. At least when it comes to custody, an immediate settlement of swaps in the cryptocurrency market could be an answer.

While many crypto traders would be appalled at the prospect of limiting themselves to multi-day spot trades instead of high-margin day trading, Mamlouk doesn’t feel like he’s missing out. “I’ve never done anything like this personally, and you know, here I am alive and well – it’s not difficult to follow the rules,” he said with a friendly smile.

Gambling, called maisir, is also prohibited. This is in part because it means making money accidentally rather than through legitimate endeavors. A comparable concept fly al-Gharar, including all business with unreasonable, unreasonable risk – that also makes it difficult.

Irrational risk sounds a lot like cryptocurrency, especially in the early days. Dogecoin, a speculation and memes-based cryptocurrency, seems to suit the description of gambling or excessive risk. Is Dogecoin a Haram? Mamlouk suspected that it would be and cautiously argued that it had no “project” and that “it was pure speculation”. This is something that Doge von Mamlouk doesn’t offer (but the judges are still out).

Another important aspect of Islamic finance, according to Mamlouk, is to ensure that Sharia-compliant funds do not mix with non-compliant funds. This is a very difficult requirement for the modern financial system, as banks hold money from many different sources.

“It could be blood money – it could be an arms dealer’s money with a deposit in a foreign bank,” with bank officials having no way of knowing where a customer’s money actually came from and therefore not being able to tell other customers To communicate that funds have been paid in the bank are being held from legitimate and authorized sources.

Mamlouk believes that cryptocurrencies are key to overcoming many of these problems. Above all, this includes the inherent traceability of many cryptocurrencies, and you can mine or buy newly mined or minted coins with a verifiable family tree – and thus a moral purity that can be determined with certainty.

The rigorous approach of Islamic finance could only act as a counterbalance that opens the door to a billion Muslims around the world to participate in the blockchain revolution.

First passions

Mamlouk was born in DC, USA, but grew up in the Kingdom of Saudi Arabia, where his father worked for the state-owned oil company Saudi Aramco. He describes the environment in which he grew up and in which he still lives today as a “highly intellectual, international community”. As a child, he remembers being shown a supercomputer, one of only three in the world at the time. The experience stuck with him and sparked his interest in technology, cryptocurrencies and financial solutions.

He returned to his homeland of DC to study business law at American University, where he graduated in 1994 and embarked on a career as an IT financial advisor (primarily fintech) and IT security – away from the courtroom to seek advice in in finance, technology and telecommunications companies in the Middle East and around the world.

Investment banking didn’t really exist in the Middle East then, he said. Mamlouk helped found the Atlas Investment Group in Amman, Jordan, which he later sold to Arab Bank, which he calls “the largest bank in the Middle East.” Over the course of his career, he noticed the growing dominance of computers and the Internet, which led him to return to the United States to study IT at the University of Virginia and to end the infamous Y2K bug in 1999, the year before his career .

nimbus

Mamlouk’s next goal is to have some Nimbus solutions certified as Sharia-compliant in order to reach more users. Based in Malta, Nimbus is a DAO regulated platform that gives users access to a range of DApps and opens the door to various potential sources of income, including staking money electronics, transactions and lending, among others.

How is a financial company certified as Sharia Compliant?

Neither the process nor the requirements are standardized, for example Islam is not a centralized religion in the Catholic sense. Instead, each country – such as Pakistan, Iran, Malaysia and the member states of the Gulf Cooperation Council – will have their own systems and procedures.

These systems can vary, as evidenced by the Malaysian Shariah Advisory Board, which praises the “great potential” of cryptocurrencies. While others, including Egypt’s Grand Mufti and Palestine’s Fatwa Center, previously announced cryptocurrencies …