Digital Assets from Shariah Perspective

Background

Digital assets as regulated under the jurisdiction of Securities Commission Malaysia (SC) consist of digital currency1 and digital token (Digital Assets). The definition and scope of digital currency and digital token which were defined as securities are as prescribed under the Capital Markets and Services (Prescription of Securities) (Digital Currency and Digital Token) Order 2019.2 Several issues from Shariah perspective in relation to Digital Assets were presented to the Shariah Advisory Council (SAC) of SC.

Issue

Since there are Digital Assets which are categorised as capital market instruments, the SAC had discussed the following issues from Shariah perspective:

Whether Digital Assets can be recognised as mal (asset) from Shariah perspective;

Whether Digital Assets can be classified as currency or`urudh (goods); and

How to determine the Shariah status of a digital token

Resolution

SAC in a series of its meetings had discussed issues in relation to Digital Assets from Shariah perspective. The discussions on Digital Assets in the SAC meetings are limited to Digital Assets that are regulated by the SC. The SAC had, at its 233rd meeting held on 29 June 2020 and its 234th meeting held on 20 July 2020, resolved the following:

1. Digital Currency

Digital currency is recognised as mal from Shariah perspective. The SAC had viewed digital currency from two scopes, as follows:

1. Digital currency that is based on technology without any underlying

Digital currency in this form is categorised as `urudh and it is not a currency from Shariah perspective. Such digital currency is not categorised as ribawi items. Therefore, the trading of such digital currency is not subject to the principle of bai` al-sarf (currency exchange).

2. Digital currency that is backed by ribawi items
1. Digital currency that is backed by gold, silver and currency

If a digital currency is backed by ribawi items comprising gold, silver and currency, it is categorised as a currency from Shariah perspective. Hence, the trading of such digital currency is subject to the principle of bai` al-sarf.

2. Digital currency that is backed by ribawi items other than gold, silver and currency

If a digital currency is backed by ribawi items other than gold, silver and currency, it is categorised as amwal ribawiyyah (ribawi items). Therefore, the trading of such digital currency is subject to the Shariah requirements of ribawi items.

2. Digital Token

Digital token is recognised as mal under the category of `urudh from Shariah perspective. In determining the Shariah status of a digital token, the following matters must be fulfilled:

1. The proceeds raised from the issuance of the digital token must be utilised for Shariah-compliant purposes;
2. The rights and benefits attached to the digital token must be Shariah-compliant; and
3. In the event that the utilisation of proceeds under item (i) and the entitlement of rights and benefits under item (ii) above are for mixed activities of Shariah compliant and Shariah non-compliant purposes, the existing SAC resolution on utilisation of sukuk proceeds and the business activities benchmark under the Shariah screening methodology for listed companies on Bursa Malaysia are applicable.