Islam's Sharia law limits certain financial practices, such as charging interest and speculative trading. As a result, cryptocurrencies like Bitcoin, ethereum and others can be considered unusable by Muslims.
Muslim countries Saudi Arabia, Qatar, Oman and the United Arab Emirates even issued warnings against the use of alternative digital currencies.
But a cryptocurrency that claims to comply with Islamic finance requirements, OneGram, says it will boost in trade – and the use of digital currency – in Muslim countries with its gold-back, Sharia-compliant digital coin.
Islamic jurists in South Africa have ruled in favour of cryptocurrencies, arguing that they have become socially acceptable and commonly used, although some, such as the Durban-based Darul Ihsan Centre refrained from endorsing then citing concern over potential pyramid schemes.
In general the compliance of cryptocurrencies with Sharia law is still a grey area, says Max Vehmeyer, client relations manager at Kagiso Asset Management which runs with among others, Islamic equity funds that are managed in accordance with Sharia investment principles.
This is partly because cryptocurrencies have inherent risks of fraud and cheating because of a lack of regulation, which is not in line with Islamic commercial jurisprudence.
Kagiso does not invest in cryptocurrencies, Vehmeyer says, but the introduction of a virtual currency like OneGram which is backed by physical gold limits speculation to some degree.