Many people in the Gulf states and beyond don’t consider bitcoin, ethereum, and other cryptos so that they comply well with Sharia law. That’s because in the Islamic faith, it’s believed that economic activity should be based on real, physical assets rather than any speculations. Observant Muslims also do not invest in banking products that offer returns via interest payments.
Cryptocurrencies writ large have not yet been officially banned in Saudi Arabia and the United Arab Emirates, but these governments have issued several warnings about their citizens purchasing bitcoin. As a result of which Muslim markets have been slower to trade in digital currencies. But it must be noted that there is a lot of money to be made in Islamic finance, Muslim countries contribute about 1% of global GDP.
Now, a new type of Sharia-approved crypto is cropping up to serve these wealthy Islamic populations.
A startup in Dubai has now created a cryptocurrency that will be backed by one of the world’s most stable assets: gold, creating gold-based crypto. OneGram’s pitch is that each unit of value is backed by a physical gram of gold that is kept in a safe. The gold-based crypto would try to narrow down problems related to volatility and speculation. The gold-based crypto been deemed acceptable under Islamic principles by Dubai-based al-Maali Consulting.
Cofounder Ibrahim Mohammed said,
“We are trying to prove rules and regulations from sharia are fully compatible with digital blockchain technology,”
The asset, Gold stays relatively stable, it hasvonly fluctuated between $1,200 and $1,350 for the past year in comparison to the bitcoin’s price which fluctuates widely day to day. After soaring to about $20,000 in 2017, the price has been fallen hard this year, which is now about almost down to 1/3rd, i.e. $7,000.
Even today in traditional markets, the price of gold is often used as the measuring bar for how well the global economy is doing. The price of gold goes up if things are looking unstable. This is done in order to offset the economic unrest or the inflation of a fiat currency. If the stock market crashes, you’ve still got physical assets sitting in a safe. The concept of gold being a safe bet, rather than a gamble, therefore also aligns itself more closely with Sharia’s anti-risk rules.
This being said, other nations are also trying to adopt the concept of Gold-based crypto.
In Thailand, HelloGold, a similar concept with gold being stored in a vault in Thailand, was founded last year in Malaysia. It was recently Sharia-certified and wants to break into the Thai market this year. Southeast Asia is another hotspot of Islamic finance, with Indonesia and Malaysia being Muslim-majority countries.
The Western crypto communities would have to be wise to create products like gold-based crypto that are Sharia-compliant in order to come in Middle east and South east Asia’s market. OneGram co-founder Mohammed said,
“In recent years, the Middle East has seen incredible growth in fintech innovations including digital tokens and smart contracts.With OneGram we are providing an opportunity for investors who care about Islamic financial markets and the security of commodity-backed investments.”
The concept of gold-based crypto limits certain challenges of the cryptocurrencies, most importantly, volatility. Thus, these gold-based cryptos must be much widely accepted.
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