Shariah-Prohibited Elements in Transactions: Foundational Principle for Shariah-Compliant Cryptocurrencies

Abstract

The exponential growth of cryptocurrencies and blockchain technology offers significant benefits to the global financial ecosystem but raises critical structural tensions within Islamic finance due to their exposure to prohibited elements such as riba (usury), gharar (excessive uncertainty), and maysir (gambling). Existing academic discourse primarily focuses on binary halal-haram debates, lacking holistic design frameworks to embed Shariah compliance directly into blockchain protocols. To address this critical gap, this study shifts the focus toward establishing foundational principles to guide technology developers in creating inherently Shariah-compliant cryptocurrencies. Through literature analysis and interviews, the study proposes the elimination of "Shariah-Prohibited Elements in Transactions" as a core foundational principle. The findings highlight five analytical dimensions essential for cryptocurrency legitimacy: (1) Freedom from Riba by avoiding interest-based lending and hidden interest disguised as pure price speculation. (2) Absence of Gharar by mitigating extreme price volatility and ensuring cryptocurrencies are backed by tangible assets (asset-backed tokens). (3) Avoidance of Gambling (Maysir) by preventing zero-sum speculation and preventing trading environments based on luck. (4) Prohibition of Purely Unlawful Speculation by integrating real economic mechanisms, such as profit-and-loss sharing models (mudarabah and musharakah), to direct funds toward productive projects. (5) Freedom from Fraud and Forgery by leveraging blockchain's inherent transparency while implementing strict regulatory governance and identity verification to protect users' wealth. Ultimately, the study concludes that cryptocurrencies can become legitimate Islamic financial innovations if they are transformed from high-risk speculative assets into stable, transparent instruments that serve the real economy and fulfill the objectives of Islamic law, particularly the preservation of wealth.