Blockchain & Cryptocurrency Background
Blockchain technology, frequently also labelled as “Distributed Ledger Technology”, will disrupt the way how we will share, authenticate and authorize flows of information (e.g. financial securities, contracts, etc.) between groups of two or many more. The World Economic Forum (“WEF”) identified Blockchain technology as one of six mega-trends in a 2015 report outlining the expected transition to a more digital and connected world. Blockchain is now being widely recognized as one of the most disruptive technologies across a number of industries including financial sector. In 2016 more than $1.4 B has been invested globally in Blockchain startups, according to a Price Waterhouse Coopers. According to a new market intelligence report by BIS Research, titled 'Blockchain Technology in Financial Services Market - Analysis and Forecast: 2017 to 2026' , the application of Blockchain could lead to a per-year cost savings of $6-8 billion in KYC/AML, $30-40 billion in trade finance, and $50-60 billion in capital markets.
Blockchain is a distributed transaction consensus ledger of digital assets that are created and transferred within a peer-to-peer computer network where each computer node saves, maintains, updates and validates a complete block record of each transaction ever occurred in the network using different cryptographic algorithms. The whole Blockchain is self-controlled - no central authority manages the transaction flow anymore.
The Blockchain technology was developed and first deployed by the inventor of Bitcoin in 2008. Bitcoin established and represents a new class of digital assets called “Cryptocurrencies” (“CCs”) built on an underlying Blockchain infrastructure. CCs are Internet-based digital informational commodities having some monetary characteristics denominated in own units of value with decentralized issuance and transaction recording as well as controlling based on an underlying globally distributed Blockchain infrastructure.
Until today Bitcoin gained a rapid acceptance as an Internet based private or non-government backed digital currency and is recognized as such today in countries like Japan or India. It is not dedicated to any other asset. Meanwhile more than 1500 different CCs based on different Blockchain infrastructures are existing in the Internet next to Bitcoin with a total Market capitalization of about USD 300B (Mar 28, 2018), where the leading 15 CCs capture 85% of market share. The big market correction over the past 3 months is only preparing the ground for a further expected hypergrowth of the CC market over the next years.
In the past Muslims were forbidden to stake their claim in the CC space, but in 2017 at least in the UAE CCs gained more attention and acceptance. In January 2017, the UAE Central Bank issued the Regulatory Framework For Stored Values and Electronic Payment Systems (“Stored Value Regulations”). The regulations were issued to regulate electronic payments and stored value. They make only a small reference to virtual currencies defining them as a digital unit used as a medium of exchange, a unit of account, or a form of stored value. The regulations do not cover virtual currencies, but on the other side suggest that their usage is prohibited. In February 2017 and October 2017, the UAE Central Bank published statements clarifying that trading in CCs was not covered by the Stored Value Regulations and that trading in CCs is currently a “tolerated practice” in the UAE. In February 2018 the largest free economic zone in the UAE, Dubai Multi Commodities Centre (“DMCC”), has started issuing licenses to firms trading CCs.
According to the recent paper "Is Bitcoin Halal or Haram: A Shariah Analysis" of the Islamic scholar Mufti Muhammad Abu Bakar, issued April 2018, Bitcoin is declared Halal, which would open the CC Market to more than 1.6 Billion Muslims worldwide.