Shariah Compliant Crypto: Bridging Blockchain and Islamic Finance
This market holds hundreds of billions of dollars ready to come onchain.
One of the most intriguing trends in Web3 lately has been the conversation around bringing Islamic finance on-chain. As an observant Muslim, I find the potential convergence of the onchain economy with Islamic principles both fascinating and overdue. With over two billion Muslims globally—many still unfamiliar with crypto—this intersection could serve as a pivotal moment, unlocking untapped markets and driving the next wave of adoption in the crypto space.
For those unfamiliar, Shariah law is a cornerstone of the Islamic faith, offering guidance for living a fulfilled and religiously meaningful life. The term "Shariah" literally translates to "clear path" and represents interpretations of God’s values rather than a singular, rigid legal code. These interpretations vary, influencing how different Islamic laws are established. At its core, Shariah law aims to protect and promote human welfare through six fundamental principles: life, reason, religion, honor, family, and wealth. These principles provide Muslims with a broader sense of purpose and a framework for upholding values that safeguard individual and communal well-being.
Islamic finance refers to financial activities that adhere to Shariah compliance. It exists as a distinct system because traditional banking often involves practices deemed unethical or haram under Islamic principles. The most widely recognized example is the prohibition of usury, or riba, which is the act of lending money and charging interest. In Islamic finance, money cannot be used to generate more money without being tied to a tangible asset or societal benefit. For instance, transactions must be backed by assets like gold, ensuring they serve a clear and beneficial purpose. Transparency between parties is essential, and instead of lending money directly to a borrower, the bank purchases the underlying asset and resells it at a higher, pre-agreed price. This structure allows the bank to earn a profit while maintaining Shariah compliance, making the transaction halal.
Imagine you wanted to buy a car with borrowed money. In conventional finance, you’d apply for a $100,000 loan with the agreement to pay back $120,000, including interest. This arrangement is haram in Islamic finance because the lender profits regardless of the borrower’s financial burden, with no shared risk or accountability. In contrast, Islamic finance takes a different approach. The bank would purchase the car outright, making it the owner. Then, it could sell the car to the borrower at a higher price or through fixed-rate installments, ensuring the transaction is halal.
Why is this method permissible? First, the profit comes from the sale of a tangible asset, not from interest-bearing loans. The bank earns its profit because it assumes risk—buying, storing, and reselling the car—while sharing that risk with the borrower. Second, the borrowing aligns with Islamic finance’s core principle that all transactions must have a positive societal impact. In this case, the car facilitates transportation and livelihood, making the transaction not only halal but also purposeful.
Risk-sharing ensures that both parties are less vulnerable to economic shocks. By adhering to a moral foundation and requiring transactions to be backed by tangible assets, Islamic finance also limits the accumulation of excessive debt.
Currently, the Islamic finance industry is valued at approximately $4 trillion—a remarkable achievement for a sector that didn’t exist 30 years ago. By 2026, it’s projected to reach $6 trillion, reflecting an impressive 50% growth rate in just two years.
This rapid growth isn’t just transforming traditional finance—it has significant implications for crypto as well. The principles that underpin Islamic finance, such as risk-sharing, transparency, and societal benefit, align closely with the ethos of blockchain technology. With crypto’s global accessibility and efficiency, it offers a unique opportunity to address gaps in Shariah-compliant finance. While discussions around this synergy have existed since Bitcoin’s inception, achieving true Shariah compliance in crypto has only recently begun to take shape, albeit with challenges along the way.
One company that has stood out to me recently in this space is Inshallah.fi. Although I’m not affiliated with the team, I’ve been engaging with them on Twitter over the past few months. They were part of an AllianceDAO cohort—a strong endorsement, given the caliber of talent emerging from AllianceDAO these days. Beyond that, I’ve observed them steadily making strides in the space, building innovative solutions and contributing meaningfully to the conversation around Shariah-compliant crypto.
Staking is a process in blockchain networks, particularly those that use proof-of-stake (PoS) consensus mechanisms, where participants lock up their cryptocurrency to help validate transactions and secure the network. In return, they earn rewards—often a percentage of the staked amount. While staking has become a popular way to generate passive income in the crypto world, its alignment with Islamic finance principles depends on how those rewards are earned and their sources.
To get more involved, I recently reached out to the team to join their Solana staking program through Goldsand. While I’ve committed a modest amount of funds, their premise is compelling: finding ways to earn competitive rewards in staking without relying on interest-based profits. The rate I got was over 7%, which is competitive with what Jito and Kamino are offering, which are other platforms I can stake my Solana. This also gave me a chance to try out the Inshallah.Fi platform and I was definitely pleased with the ease of the experience.
Their core argument is that staking can sometimes involve activities deemed haram. Since staking validates transactions and earns profits in return, there’s a risk that some of those transactions may originate from haram sources, such as interest. By working with their program, however, you can be assured that all activities are halal, allowing you to participate with peace of mind.
Next, I plan to start staking some ETH. The only reason I haven’t yet is that my ETH is stored in cold storage, which I don’t have easy access to at the moment. As a practicing Muslim, this approach to staking feels intuitive and aligned with my values. I’m genuinely excited to see more products emerge that allow me to confidently engage in crypto in a way that adheres to what’s deemed permissible.
Shariah-compliant crypto has the potential to unlock vast, untapped markets while adhering to ethical financial practices. As the space continues to grow, I’m excited to see more innovative solutions that align with Islamic principles and broaden access to the on-chain economy. If you’ve come across projects working toward similar goals, I’d love to hear your thoughts.