If you have delved a little into crypto, you have probably heard the word 'DeFi' thrown around. Some people may have limited their exposure to crypto products, such as DeFi, because of their religious beliefs.
For the global Muslim community, interacting with crypto raises some questions: is it halal? Does it follow sharia law?
However, new halal DeFi solutions offer ethical interactions with crypto and Web3 technologies.
What is Decentralized Finance
DeFi — short for decentralized finance — is a new vision of banking and financial services based on peer-to-peer payments through blockchain technology. DeFi allows "trust-less" banking via blockchain, sidestepping traditional financial middlemen such as banks.
Is DeFi Halal?
At the bottom, there is nothing haram about DeFi per se. In fact, at its core, it is arguably more Islamic.
Like with most crypto-related matters, you need to look at what is happening in the particular project you are participating in. One critical thing with DeFi is that many people are put off because of the use of the word 'interest.'
The critical thing to remember is that people might use the term 'interest' in DeFi without actually meaning it. So it could be wonderful.
The most crucial point to remember is that no blanket rule can cover every project. If you doubt the permissibility of a project, make sure to get it screened by a scholar trained in Islamic finance.
For example, "most Islamic scholars globally have thumbed currencies like Bitcoin and Ethereum as always Sharia compliant because the underlying technology is accepted."
How DeFi Makes Islamic Finance Better
Enables Borderless Payments- As is the case with everything in the world of cryptocurrency, DeFi does not have geographical limitations. Anyone with access to the Internet and crypto wallets can interact with DeFi. As such, many people in the Islamic state who don't have access to the western payment system can now use DeFi to send and receive money from anywhere in the world.
Faster Speed- A lack of intermediaries and borders, combined with the superior speed of blockchain technology, results in faster transactions and easier access to services. As such, it gives people access to a faster speed than traditional banks. In DeFi, the transaction is in a matter of seconds. In contrast, it may take three days for a transaction to be confirmed in traditional banks.
Improved Transparency- The rate of online scams is alarming, and there is a trust crisis in the world; people don't trust each other. However, in DeFi, you don't have to trust the other person you transact with. All you need to do is to rely on the code. Everything in DeFi is governed by a smart contract, enhancing transparency between parties.
Quick and Permanent Access- Before DeFi, if you needed to get a loan, you would have to go to the bank, and a lot of time will be wasted. With DeFi, you can get a loan with just one click, even in the middle of the night. You can access the market from anywhere and anytime as long as you have an internet connection.
Bottomline
The impact of DeFi is felt everywhere, especially in Islamic states, because it gives people equal access to funds. It is in the mission to give everyone privacy over their funds.
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