Reconciling Tech and Ethics: Building a Shariah-Compliant Financial Ecosystem

A mere 25 million Bitcoin adopters generate a market capitalization of 375 billion dollars. There are more than 1 billion Muslim users on the internet. What would be the capitalization of a currency supported by as little as 3% of them? Almost double that of Bitcoin.

But why does this question arise in the first place? In other words, why can’t religious Muslims use Bitcoin for digital payments? We can find the answer in history. For centuries, the development of finance in the regions with the majority of the Muslim population has been limited by the strict prohibitions of Islam.

The Shariah law prohibits charging interest, speculating on ambiguity, and selling risk in the form of risk premium — in other words, virtually every tenet of conventional finance fails to meet the criteria of halal investment. Cryptocurrency is no exception, leading to the exclusion of a vast market segment (according to the Global Islamic Economy Report, the Islamic financial sector is expected to grow to $3.69 trillion by 2024) from the industry.

With the emergence of blockchain technology, it was the question of time before the first Shariah-compliant financial ecosystem on blockchain appeared. In this piece, I will share the experience of building Haqq — a ledger specifically created to support the world’s Muslim community, grant it new-age financial instruments, and support inclusion.

Technical solutions and the consensus mechanism

Haqq (Arabic for ‘truth’) is an application-specific blockchain built on Cosmos SDK — an open-source frameworkfor building multi-asset public blockchains. There are many benefits of Cosmos SDK, such as instant finality, which makes transactions irreversible immediately after block inclusion, inter-blockchain communication (IBC), making the network interoperable with other IBC-supported chains, and energy-efficient Proof of Stake consensus.

The Haqq network is coupled with EVM, making it compatible with existing Ethereum smart contracts and toolsets. Haqq network allows the deployment of any smart contract written for Ethereum or any other EVM-compatible network without changing a single line of code. Besides, the Haqq network is compatible with Cosmos-native wallets like Keplr and Ethereum-native wallets like Metamask.

The Haqq blockchain also leverages the Tendermint Core consensus mechanism — the same one implemented by BNB Beacon Chain (formerly known as Binance Chain). This is a Proof of Stake Byzantine Fault Tolerant protocol that allows instant finality and quick execution of transactions. Tendermint Core leaves flexibility in how the validators are chosen.

Ethics come first: how to reconcile a blockchain with religious norms

Islamic finance is a socially responsible form of investment that emphasizes promoting inclusion and bolstering the community. 10% of all Islamic Coin minted on Haqq is automatically deposited to the Evergreen DAO — a value-driven fund for investments in Muslim non-profits or ESG ventures. The technical side is also mindful — Haqq was developed before the Merge, so choosing Cosmos SDK and Tendermint’s Proof of Stake over Ethereum was an intentional environmentalist decision.

Haqq’s executive board positions the blockchain as an infrastructure-level solution for ethical projects — not only religion-related but also edutainment (education in entertainment), non-profit dApps, charity fundraising, and many more.

This mission statement, paired with its PoS carbon neutrality, allowed Haqq to reach an exceptionally significant milestone Bloomberg named “a major breakthrough.” In June 2022, Haqq and Islamic Coin gained Fatwa — a legal ruling on a point in Islamic law — from the world’s leading Muslim authorities. They thus officially became the first Shariah-compliant blockchain and cryptocurrency.

Promoting community values

Haqq blockchain and its native Islamic Coin are vivid examples of how application-specific blockchains and Web3, in general, can help promote the community values of a religious or ethnic group.

Compliance with the Shariah financial laws and Fatwa from religious authorities, paired with the project’s robust technological backbone, may lead to widespread adoption of Haqq among the digital Muslim community.

Islamic Coin team anticipates rapid expansion in countries with a large unbanked population (like Nigeria, with 60% of the unbanked population, or Indonesia, with more than 50%). The team is partnering with institutional finance organizations to bring financial services to people who have never had access to it before – thanks to blockchain technology. By doing so – Islamic Coin takes on the original Bitcoin mission – bank unbanked, remove unnecessary intermediaries, and ensure inclusiveness of both builders and users of financial services worldwide.