Implementation Of Zakat Payment Platform For Cryptocurrencies

Abstract

Bitcoin spearheaded the rise of cryptocurrencies since it was first launched in 2009. The concept of bitcoin as digital currency was first published publicly in the 2008 well-known whitepaper by pseudonymous Satoshi Nakamoto. The whitepaper outlined a self-serving peer-to-peer transaction network concept based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party such as financial institutions. Since then, thousands of cryptocurrencies have been launched mostly through token offerings as an alternative approach of raising funds for blockchain, technology projects, and start-ups. People are holding cryptocurrencies mostly as digital asset investments. Some individuals made huge profits from buying cryptocurrencies at their initial offerings and sold later when the prices increased. Some crypto millionaires were born from such trades. However, many people lost their investment as well due to many factors. Some were due to bad investment decisions, and some fall into scams and investment programs run by dishonest peoplewith promises of highly lucrative returns. As trading and owning cryptocurrencies are becoming common, governments and policymakers around the world are coming up with proper and comprehensive regulations for cryptocurrencies. In the context of Malaysia, in which zakat collections and distributions are of state matters, this paper discusses the implementation of zakat payment platform for cryptocurrencies at zakat institutions. This paper seeks to contribute to the academic development, blockchain technology, and zakat management.

Zakat payment from cryptocurrencies and crypto assets

“…On the website of the Zakat Foundation of America (2021), justifications were made on the Shariah permissibility of cryptocurrency, which included its similarity to any other fiat currency, whereby the value of the currency is derived from its capacity to store value and being accepted as a unit of exchange. Furthermore, the wide acceptance of cryptocurrencies and the agreement of having a value for the currency requires zakat to be paid on it, which indicates the general permissibility of cryptocurrencies from the Shariah perspective.…”

“…Similarly, the Zakat Foundation of America published a notice on their official website, stating that zakat on cryptocurrency holdings shall be calculated the same way zakat is calculated for money, with a specified zakat rate for currency at 2.5% (Zakat Foundation of America, 2021). This publication provided the general requirements applicable to zakat on wealth, including cryptocurrencies as assets.…”

“…This publication provided the general requirements applicable to zakat on wealth, including cryptocurrencies as assets. The requirements include holding the absolute ownership of the assets, growth in the asset value, holding the minimum quantity of wealth (nisab) for zakat, the asset value is in abundance above need, the person is solvent or free from debt and zakat payment is to be paid in the lunar year (Islamic year) (Zakat Foundation of America, 2021).…”

“…So far, there is no comprehensive study conducted on payment of zakat from cryptocurrencies and crypto assets. What is found in this regard is for academic research: Yusof et al (2021) have conducted a study on the implementation of zakat payment platform for cryptocurrencies where they concluded that zakat institutions must be ready with crypto zakat platforms as the number of Muslims dealing with digital assets are increasing; for column in newspapers: Wang (2021) has deliberated on cryptocurrencies, digital currencies and zakat. In addition to this, there are some zakat institutions, such as the National Zakat Foundation, who have given their opinion on zakat on cryptocurrencies (National Zakat Foundation, 2022), and institutions advising zakat institutions or dealing with it like Blossom Finance where they have clarified in their official website on frequently asked section on where they explain the concept of zakat, zakatability of crypto assets and the calculation of zakat payment (Blossom Finance, 2021) and Amanah Advisors who on their official website have provided the answer for the question related to zakat treatment on crypto assets (Amanah Advisors, 2021).…”

“…Various organizations around the world, such as GlobalSadaqah and Blossom Finance, have started collecting zakat using cryptocurrencies (Paizin, 2021). To date, although there is a lack of literature on the issue of zakat using cryptocurrencies in general, the extant limited studies have looked into such issue conceptually (Beik et al, 2019;Yusof et al, 2021). Thus, the novelty of the present study emerges from the following: the present work is likely the first research examining the potential of paying zakat on cryptocurrencies based on empirical evidence.…”