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Our Screening Methodology

Understanding how we screen digital assets for Shariah compliance.

Our Stance

Based on many Shariah scholar viewpoints, we conclude that Cryptocurrency activity and transactions are permissible with strict rulings. Cryptocurrency needs to be valuable as our society values the assets same as tangible assets. Until now, Cryptocurrency has been very valuable as can be seen on the market price reflected on many global exchanges. Furthermore, some Cryptocurrencies have been accepted for payment in exchange for goods through a variety of merchants.

Scholars Opinion

Digital Assets from Shariah Perspective

Background

Digital assets as regulated under the jurisdiction of Securities Commission Malaysia (SC) consist of digital currency 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. 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

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:

  • i. 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).
  • ii. Digital currency that is backed by ribawi items
    • Backed by gold, silver and currency: Categorised as currency. Trading is subject to bai` al-sarf.
    • Backed by other ribawi items: Categorised as amwal ribawiyyah. Trading subject to ribawi requirements.

2. Digital Token

Digital token is recognised as mal under the category of `urudh from Shariah perspective. Requirements:

  1. Proceeds raised must be utilised for Shariah-compliant purposes;
  2. Rights and benefits attached must be Shariah-compliant; and
  3. For mixed activities, existing SAC resolutions on sukuk proceeds and business activity benchmarks apply.

The Grand Mufti of Egypt Shaykh Shawki Allam has declared that bitcoin and cryptocurrency is HARAM. Primary reasons cited:

  1. Used for illegal activities and to evade authorities.
  2. Intangible and internet-only usage.
  3. Allows for money laundering and fraud.
  4. Lack of central authority monitoring, undermining central banks and governments.

Screening Criteria

Our comprehensive methodology consists of three key pillars:

Shariah Analysis

01 Project Evaluation Ensuring that the projects underlying the token issuance adhere to Shariah principles and are free from non-compliant activities.
02 Token Evaluation Verifying that the token provides inherent value and that its associated benefits do not conflict with Shariah principles.
03 Reward System Evaluation Ensuring that the methods offered for users to generate additional tokens are devoid of any elements contrary to Shariah principles.

Legitimacy Analysis

  • Project Authenticity via Smart Contract Audit Ensuring the project’s smart contracts are audited to minimize risks and verify that the project operates as intended.
  • Community Engagement Maintaining ongoing communication with the community, providing regular updates about the project’s progress.
  • Clarity of Information Ensuring the whitepaper and related documentation provide comprehensive and transparent details about the project.

People Analysis

  • Education Verifying that team members possess relevant and verifiable educational qualifications.
  • Experience Confirming that team members have relevant industry experience.
  • Legal Cases Confirming that team members are free from any legal charges or issues.