Bitcoin: Currency, Commodity, Security or New Identity? A Discussion (Part I)
Translated from article: Bitcoin: Matawang, Komoditi, Sekuriti atau Identiti Baru? Satu Perbincangan ( Bahagian I)
The world, and humans, change rapidly and constantly. Human lives can be considered as robust, or ever-evolving, and could not be applied to a finite concept. The summaries of lives goes beyond what a human can comprehend (see al-Juwayni and Ibn Tamiyyah in al-Muswaddah). If that is the case, then what is the secret behind Syariah remaining relevant and ever-green in every changing phase, time and place?
Syariah does not exist in specific and detailed “laws” for every matter. Instead, Syariah is inclusive of all basic and fundamental principles that are flexible and accomodating. Most interestingly, new discoveries regarding Syariah principles are aligned to new discoveries, based on evolving human facts.
Take for example, intagible asset. It is a new discovery, which is rare 1400 years ago, but today is a more common occurence. And sometimes intangible assets can be considered as more valuable than tangible assets (see Shariah Minds in Islamic Finance by Dr Mohd Daud Bakar, 2016). The assets and wealth of giant company Microsoft is valued higher than that of General Motors, eventhough Microsoft’s assets are mostly softwares, compared to cars owned by GM.
If we follow the same line, currency is also considered as dynamic in our lives. Islam, since the time of the Prophet SAW, has never given any fixed nor strict definition to what currency means. This is because currency is a part of human social structure. When a community, modern or primitive, accepts something – tangible or otherwise – as a valid medium of exchange in trading or other financial transactions, Islam acknowledges it as a currency that ease human activities in fulfilling their needs.
Now, say that currency has been defined with specifications in terms of types and form, the majority of society would probably encounter problem in their daily activities. In other words, if currency is only valid in terms of syarak if it is backed by gold or silver, or diamonds or even oil, what about societies that have no such resources in their countries? The main function of currency is to act as a medium of exchange, and not to have intrinsic value (not to be mistaken with store of value).
Money issued by countries, or fiat money, are legal tender eventhough they have no commercial value as a standalone. It is only a piece of paper afterall. However, what gives fiat money value is the faith society has on the whole ecosystem from the issuance of money, to the transactions involved using fiat money. The keyword here is faith, whereby the society accepts that the money in their pockets, wallets or banks have value and can be used in any transactions.
Though Islam has never specified the definition of currency, Islam has emphasised on the main enemy of transactions involving money, and that is riba’ (not to be mistaken with gharar, as gharar is not relevant in the dimension of riba’ and vice versa). In short, if any transactions involving money is free from riba’, it is considered as fulfilling the requirements of Syariah law.
In an economic ecosystem, there is also anothe element present: commodity. Commodity is a good or service that benefits human directly or indirectly, such as equipment, machineries, raw materials, flight tickets, education fees, medical costs, and even arts. Commonly, a buyer will pay a specific amount of money in order to own the goods or services. However, it is not uncommon to see commodity exchanged with commodity in the modern world, for example a transaction involving coconut oil and oil, or ABC share or XYZ share. In this context, one of the commodities exchanged cannot be considered as currency as it does not fulfill the role and requirements to function as a currency. We will continue with this issue in the future.
To end the first part of my discussion on Bitcoin (out of 5 parts), let me talk about security. Security can be defined as a guarantee to the owner of an obligation, whether an obligation to pay or an obligation to complete a job, or any type of obligation that may arise. Interestingly, Syariah law is quite flexible in matters regarding security. If it involves guarantee and wealth security (not personal warranty), it can be in the form of money, tangible or intangible asset, or even income or future benefits (uncomfirmed). The question that arises is when currency becomes a security, how does Syariah law applies (currency can be fiat money, gold or Bitcoin)?
The bigger question is what is the DNA of Bitcoin, and with it other cryptocurrencies or digital currency): is it a currency, or a new type of commodity, or none of those two but a security in a financial transaction. Follow part II of the series to find out.
Datuk Dr Mohd Daud Bakar
Note: The views and opinions within this article is personal to the writer and does not reflect any organisations that the writer is associated with.