Is your cryptocurrency halal or haram? An Arab researcher might have the answer

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New Delhi: At a time when the Indian government is taking its time to create a comprehensive regulatory framework for cryptocurrencies, researchers in Saudi Arabia are grappling with a very different crypto question: is it haram or halal?

What Islamic scholars and the Indian government seem to have in common are concerns about the “intrinsic value” of cryptocurrencies and the risk of investing in them.

On the Indian front, the Treasury Department’s latest economic survey, presented to Parliament on Tuesday, said crypto assets “fail the test of being a financial asset because they have no intrinsic cash flows.” The topic of cryptocurrencies was also conspicuously absent from Finance Minister Nirmala Sitharaman’s budget speech on Wednesday.

While these are the latest developments or non-developments in India, the government has historically been cautious about regulating cryptocurrencies.

Meanwhile, in Islamic countries like Saudi Arabia, there is a great mystery as to whether investing in cryptocurrencies is Sharia compliant or not, as they can be comparable to gambling, which is haram or prohibited under Islamic law. Other red zones related to Sharia collect or pay interest and economic speculation.

While various Islamic scholars or clerics have issued fatwas against crypto in recent years, it has generally been a theological gray area.

Amidst this uncertainty, an Arab computer science researcher has proposed a machine learning model, based on input from Islamic scholars, that can help Muslims decide which cryptocurrencies to invest in without clashing with Sharia principles.

The November 2022 research paper by King Saud University College of Computer and Information Sciences student Shahad Z. Al-Khalifa is entitled “CryptoHalal: An Intelligent Decision-System for Identification Halal and Haram Cryptocurrencies” and is publicly available – Access and non-peer-reviewed platform arXiv.

“From the perspective of Islamic finance, cryptocurrencies have raised many questions among Islamic scholars regarding their compatibility with Sharia… َ especially when they meet the Islamic requirement for a currency such as intrinsic value,” the paper reads.

“It has become necessary for Islamic finance to adapt to modern changes and help provide sharia-compliant products and services to Muslims,” ​​it adds.

The goal of the research, writes Al-Khalifa, was to “investigate and identify features and characteristics that play a role in determining cryptocurrency case law.” Based on these identified characteristics, an “intelligent system” using a machine learning model was developed to classify cryptocurrencies as halal (permitted) or haram (prohibited).

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The “crypto-halal” system

The machine learning system designed to help Islamic investors make Sharia-compliant decisions is called “Crypto-Halal.”

The research paper states that the system currently has a record of 106 cryptocurrencies, of which 56 have been classified as halal and 50 as haram.

Among the major cryptocurrencies, Bitcoin, Ethereum, and Dogecoin fall into the Halal category, while Shiba Inu (SHIB) Token, Alpha, and PancakeSwap (CAKE) are labeled as haram.

In order to use CryptoHalal, a user must enter the cryptocurrency name. In the backend, the system first looks for a match in the database of cryptocurrencies that the researcher has already classified as haram/halal. If there is no match, the system queries an external website owned by CoinMarketCap, a leading website that tracks new and existing cryptocurrencies.

Based on the properties and characteristics of the cryptocurrency, the system then tells the user whether the currency is “probably halal” or “probably haram”.

CryptoHalal website interface and what it will look like when the website indicates that a cryptocurrency is haram or halal | Screenshot of “CryptoHalal: An intelligent decision-making system to identify Halal and Haram
Cryptocurrencies” by Shahad Z. Al-Khalifa

The paper notes that it is important to have an intelligent system that can distinguish between haram and halal crypto as “more than 30 new cryptocurrencies” emerge every month.

Furthermore, the researcher claims that a need for such a system emerged in a Twitter poll conducted among “Muslim cryptocurrency investors.”

The survey received a total of 748 responses, the newspaper said. Around 96 percent of respondents said they owned cryptocurrencies, and almost half of them claimed to own more than five.

One of the questions of the survey was: “Do you think that an intelligent platform that helps to extract the case law of cryptocurrencies would influence your decision to buy cryptocurrencies?” This question received 620 responses, of which 83.2 percent agreed that this would indeed influence their decision.

“Our questionnaire shows that such a system as ours is needed in the Muslim community and would resolve a major conflict in the world today,” the paper said.

How does the system distinguish Halal from Haram?

The system was trained to decide whether a cryptocurrency is haram or halal based on 20 characteristics commonly found in cryptocurrencies. This classification is based on the interpretations and judgments on cryptocurrencies found on a Telegram channel “monitored by Islamic scholars” also called “CRYPTOHALAL”.

The Telegram channel specializes in crypto market observations and legal reviews to “help Muslims with cryptocurrency jurisprudence.”

“To date, there are no published datasets that include the classification of cryptocurrencies as halal or haram,” the paper states, acknowledging that this is one area where the decision-making system can be improved by moving away from the manual selection of Features deviated from the rules of the Telegram channel to a system that automates this picking and selection via deep learning models.

The system has divided the 20 traits commonly found in cryptocurrency projects into two categories, dubbed “High Priority” and “Low Priority,” based on the Telegram channel run by Islamic scholars.

“High priority indicates features that only have haram cryptocurrencies, and low priority indicates features that consist of both halal and haram cryptocurrencies,” the paper reads.

“This split will help determine the cryptocurrency’s level of compliance with Sharia law. For example, if the majority of high priority characteristics in the cryptocurrency are met, then it is more likely to be Haram with a score of Likely Haram, otherwise it is more likely to be Halal with a score of “Probably halal ‘acts’,” it adds.

High priority functions linked to haram include speculation (when a cryptocurrency project is deemed to be based on speculation) and lending (when a cryptocurrency project offers lending services).

Not-so-haram low-priority features include staking (when a crypto project offers some incentive to those who are long-term holders of its cryptocurrency) and governance (where a cryptocurrency project token can be used to vote on the direction of). the project).

“[W]We found that 45 out of 50 haram cryptocurrency projects use decentralized finance (DeFi) and liquidity pools, while none of the halal cryptocurrencies participate in lending and lending, leverage, margin and prediction market,” the paper reads.

(Edited by Asavari Singh)

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