UAE sees first sharia compliant cryptocurrency
Ibrahim Mohammed moved from London to Dubai 10 years ago. In those years he launched and developed a series of successful financial advisory companies. By late 2015, he wanted to create something to make the Islamic world proud. The result is Onegramcoin, the first cryptocurrency to be backed by gold and remain compliant with Sharia law.
“Typically, we associate Islamic finance to be boring, almost copying western finance,” Mohammed said. “This is the first time something really exciting is happening in Islamic finance. It's showing [that] Islamic finance stood the test of time and is entering the digital market when even conventional finance is struggling in how to enter blockchain and make money.”
Cryptocurrency allows for decentralized transactions and complete ownership of individual digital currency in a secure blockchain database. In the region, bitcoins (the most well known cryptocurrency) can be bought and exchanged through Dubai based Bitoasis with Emirati dirhams (1 bitcoin (BTC) is about 7,988.24 dirhams). Last year, the Dubai government founded the Global Blockchain Council and also committed to putting all its documents in a blockchain database by 2020.
Bitcoin and other alternative cryptocurrencies, however, are not truly validated by Islamic finance because of regulatory restrictions in the Islamic world. In a white paper published on the Onegramcoin (OGC) website, financial transactions are sharia compliant if they are not interest based, if they encourage profit and loss sharing, and are not sourced in speculation.
“In Islamic finance there needs to be an underlying asset,” said Mohammed. “One gram of gold is the reference for one OGC [token]. For the [OGC] structure to remain sharia compliant, the gold will have to physically exist. Having that gold pegged in stabilizes [the currency] because now the minimum exit is the stock price of gold.” Additionally, OGC also plans to meet the wealth sharing criteria of Islamic finance by giving 2.5 percent of all profits to the One Gram Foundation - a UK registered charity.
After 18 months of prep, OGC launched its Initial Coin Offering (ICO) with just over 12.4 million OGC tokens on May 27. The first two days of the ICO crossed $1 million according to the OGC team. For the one gram of gold backing each token, OGC partnered with Goldguard, a gold trading company licensed by Dubai Airport Free Zone (DAFZ). The gold will be held at a vault inside the Dubai International Airport.
Buyers will need to register with Goldguard and purchase gold at live spot rates in order to obtain tokens. The gold can then be redeemed for an OGC token for a 10 percent premium. The 10 percent will go into business development, salaries, marketing and operational costs. Based on the most recent spot price of gold, a sold out sale of the tokens would bring in more than $500 million, which would make it the largest cryptocurrency crowdsale goal in history.
To build OGC, Mohammed and his team of 30 plus members looked at the current problems of the cryptocurrency market. At the top was the struggle of cryptocurrency transaction and the lack of transparency typical to the cryptocurrency world. In terms of transaction time, a bitcoin purchase could last 10 minutes. OGC expects the entire buying process to take one minute.
That the currency is backed by physical gold is the primary guarantee of safety and transparency to the buyer. Bringing Pricewaterhousecoopers as their auditing partner and Al Maali as the company’s sharia advisors helps with trust building , said Mohammed.
“If you are going to invest in something you’re going to need a comfortable, safe and regulated place that you can buy,” Mohammed said. “Everything we’re trying to do is keep it as transparent as possible. We’ve also shown regulators to an extent as to how you could potentially regulate a cryptocurrency.
“You can't regulate the blockchain because it defeats what the purpose of crypto is which is to operate independently - we show that you can have such stringent international accepted processes within [the structure],” he said.
Cryptocurrency has yet to be adopted by the mainstream. Mohammed admitted he spends a lot of time educating media and partners on the potential of it. Ferdous Ahmed, CEO of 21 Mil, is working with OGC to build software solutions and educational material that would make cryptocurrency more accessible. 21 Mil is a Canadian based company working with businesses in cryptocurrency and blockchain technology.
“If someone asks me about bitcoin I have a tendency to translate the mathematical protocol [behind it],” Ahmed said, citing his mathematical background. “It’s too early for bitcoin to be adopted by the mainstream because most people can’t really conceptualize bitcoin. OGC being backed by gold and being compliant with sharia has a better chance to go mainstream especially in South Asia, Middle East and various African countries.”
According to data from Pricewaterhousecoopers, Islamic finance assets total about $1.2 trillion and account for only 1.2 percent of total global banking assets.In targeting the Sharia market, OGC will tap into unique territory. So far, the Islamic financial community has been very supportive Mohammed said.
“We have received congratulatory messages from sheikhs across the world - that [they] can’t believe [we] have done this and we’re very proud of it,” he said. “I was scared a little bit how the islamic financial community would react but they reacted very positively….that’s been quite humbling.”
In the long term, Mohammed hopes to build a payment solution with OGC. The ICO will end once all tokens are sold out or in 120 days. If all the tokens do not sell out, there will be a new supply of OGC equaling the amount of OGC sold in the ICO. OGC also plans to give 70 percent back to their coin holders by buying new gold, thereby increasing the value of OGC. While the currency is Sharia compliant, it is also open to non Muslim buyers and investors.
“We are treating this like the digital currency of the future and everything we give going forward is to make that reality,” Mohammed said.
Feature image via Pexels.