The rise of Bitcoin and other cryptocurrencies has brought its fine share of good and bad among its investors. That said, one group has been left out of the mad cryptocurrency frenzy. These are Muslim nations and followers of the Muslim faith who cannot invest in speculative investments due to Sharia law. The Islamic faith requires that observant Muslims only invest in Real and physical assets with some even shying away from interest-based investments such as banking products. In Gulf states, Cryptocurrencies such as Bitcoin, Ethereum, etc are not considered compliant with Sharia Law.
Although the Gulf governments have not banned the use and purchase of cryptocurrencies, warnings have been issued to its citizens against the new form of currency. However, to serve these wealthy Islamic populations, a new type of Sharia-approved crypto is cropping up.
In Dubai, a startup has created a cryptocurrency that is backed to one of the world’s most stable assets: gold. OneGram’s pitch is that each unit of value is backed by a physical gram of gold that is kept in a safe. This, therefore, limits volatility and speculation and has been deemed acceptable under Islamic principles by Dubai-based al-Maali Consulting.
“We are trying to prove rules and regulations of sharia are fully compatible with digital blockchain technology,” said co-founder Ibrahim Mohammed. Gold stays relatively stable and has hovered between $1,200 and $1,350 for the past year. On the other hand, bitcoin’s price fluctuates widely day to day. After climbing to an all-time high of nearly $20,000 in 2017, the price has been falling this year to lows of nearly $6,000.
The concept of gold being a safe bet, rather than a gamble, therefore also aligns itself more closely with Sharia’s anti-risk rules. In traditional markets, the price of gold is often used as the measuring bar for how the global economy is doing. If things are looking unstable, the price of gold goes up. That’s because it’s a safeguard against economic unrest or the inflation of a fiat currency; if the stock market crashes, you’ve still got physical assets sitting in a safe.
If Western crypto communities want to play in the Gulf and Southeast Asia, they’d, therefore, be wise to create products that are Sharia-compliant. “In recent years, the Middle East has seen incredible growth in fintech innovations including digital tokens and smart contracts,” OneGram co-founder Mohammed said in a recent interview. “With OneGram we are providing an opportunity for investors who care about Islamic financial markets and the security of commodity-backed investments.”