For some, issuing tokens via a blockchain could represent a new opportunity to support the development of a project, for instance by investing in it, while respecting Muslim law and Shariah principles.
As regards investment, the five key Shariah principles must be adhered to and carefully examined, i.e. interest, speculation, profit- and loss-sharing, legitimacy of underlying sectors and backing by tangible assets.
It is essential to take into account the nature of the token, its prerogatives and the structure of the blockchain on which the operation is based. For instance, to ensure compliance with Shariah principles, an activity based on a blockchain must enable its participants (issuer and its economic partners) to exchange service offer and demand without a speculative objective or drive for profitability.
Similarly, a foundation1 operating through an IT program, and specifying to its community the governance rules as registered in the blockchain, could establish a Shariah compliance committee that monitors the adherence to the above-mentioned principles.
Extra-financial and financial analysis criteria, as provided by Muslim law, should also be included in the protocol's proper operation and exclude any activity that is prohibited as a main activity and/or the exceeding of thresholds as regards management and indebtedness.
It is also necessary to check that the activities stored on the blockchain generate the expected added value for the community. Indeed, the economic activities deriving from a blockchain are generally aimed at developing client/company relationships that are likely to improve the sharing of value created by the technological mechanism and the network effect and could, in certain cases, meet these requirements.
Lastly, it is important to verify that tokens issued via a given blockchain are backed by tangible assets. The purpose here is to turn an essentially digital environment into a material one, where immaterial assets backed by real assets, such as raw materials for instance, could be rendered eligible.
A case-by-case legal analysis of the technological mechanisms being considered within this environment is a necessary step for all companies interested in the economic opportunities provided by blockchain and its compliance with Muslim law.
1) Decentralized Autonomous Organization (DAO) foundations.