Prominent Muslim scholars and financial advisors released a white paper declaring Ethereum “halal,” or permissible, according to Islamic Sharia law. The clarity for Muslim purchasers may stimulate additional demand for Ether.
Ethereum’s compliance with Sharia law has been contemplated for some time. Virgil Griffith, an American programmer and head of special products at the Ethereum Foundation, first examined the question in October 2017. Now, a white paper from Oman-based Amanie Islamic Finance & Shariah Advisor highlights that Ether does indeed adhere to Sharia law, as first reported on by Decrypt
In Islam, usury, the process of lending money to profit from interest, is considered “haram,” or sinful. That said, making a profit through the appreciation of a physically-backed asset, like real estate or gold, is compliant with Sharia law.
Most cryptocurrencies are considered haram because a physical asset does not back them. Instead, coins often represent a pseudo-investment in a corporation. Because of most cryptocurrencies are likely securities, as stated by the SEC, the semblance to interest provokes a stir among those in Islamic finance.
Instead, Ether represents a “utility token” and functions as a currency that powers Ethereum, Amanie argued. Thus, owning ETH is halal.
That said, Muslim scholars reserved their thoughts on specific use cases for ETH since numerous tokens run on the protocol. In cases where tokens are used to raise money for companies—which looks a lot like interest—then such activity would be considered haram in Islam.
In the more nuanced portion of the analysis, authorities ruled that Ethereum’s proof-of-work and proof-of-stake are both compliant to Sharia principles. However, proof-of-stake, the act of “locking up” tokens to receive staking rewards, is still a matter of debate once ETH2.0 goes live.
Amanie is a highly-admired voice in the Islamic finance industry. Although the opinion is not final by any means it still holds weight among devout Muslims. Considering there are 1.8 billion Muslim adherents around the globe this decision could have material ramifications on the demand for ETH.
The ruling is similar to comments made by the chairman of the U.S. Securities Exchange Commission in March, which affirmed that Ethereum is closer akin to a commodity than a security.
Atif Yaqub, a Muslim blockchain expert who helped explain the technical particulars to Amanie, said conclusively:
“Individuals who are more faith conscious can now engage without any doubt that the emerging tech is fully permissible to use.”