April 19, 2022.
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I recently reviewed the top 15 cryptocurrencies by Market Cap and revealed my comfort level investing in them from a halal perspective.
I’ve decided to complete my review of the top 20 cryptocurrencies by market cap.
I’ll give you my comfort level investing in Wrapped Bitcoin (WTBC), Polygon (MATIC), NEAR Protocol (NEAR), Cronos (CRO), and Dai (DAI).
You can see a full up-to-date list of cryptocurrencies which I’ve reviewed on Practical Islamic Finance.com for free, link in the description.
While generally halal, I think a cryptocurrency can be haram if it is primarily used for haram purposes.
So I will be checking the utilities of these cryptocurrencies to determine my comfort level investing in them from a Halal perspective.
On this topic, When giving my halal ratings for cryptos and assets in general I don’t like to use the terms “Halal” and “Haram” in light of the tremendous responsibility entailed when using these terms.
Instead, I use the terms: Comfortable, and Uncomfortable to represent my ratings and as a reminder to the listener that this is ultimately a judgment call that I am making which I could be wrong so be sure to do your own due diligence.
Now without further adieu, let’s get started with our list.
The first Cryptocurrency on our list is Wrapped Bitcoin symbol WTBC.
Wrapped Bitcoin is like the impossible burger.
It may look like the real thing but it isn’t.
While Wrapped Bitcoin has the price of bitcoin and the word Bitcoin in its name, it is not Bitcoin.
So why the need for Wrapped Bitcoin?
The problem with Bitcoin for many holders is that it is not compatible with smart contracts.
It lives on its own blockchain and this blockchain has only very basic functionality by modern standards.
So if a holder of Bitcoin wants to use their Bitcoin for liquidity farming for example or to interact with a decentralized application they can’t on the local Bitcoin blockchain.
Enter Wrapped Bitcoin.
Wrapped Bitcoin is a tokenized version of Bitcoin (BTC) that runs on the Ethereum (ETH) blockchain.
It is backed by Bitcoin at a at 1:1 ratio and is automatically minted or burned whenever users purchase or sell their wrapped Bitcoins for Bitcoin.
As someone who is comfortable investing in Bitcoin from a halal perspective, I see no problem with attempting to enable Bitcoin holders to use their holdings to interact with smart contracts and decentralized applications which is what wrapped bitcoin does.
Therefore, I am comfortable investing in Wrapped Bitcoin from a halal perspective.
The next Crypto on our list is Polygon with symbol MATIC.
Polygon aims to improve the speed and reduce the cost of transactions on Ethereum by processing these transactions outside the main Ethereum blockchain on a plethora of sidechains.
These sidechains can handle transactions for many decentralized applications at more attractive speeds and costs than what is available on the main Ethereum blockchain.
So Polygon is a layer-2 or add-on to the Ethereum blockchain.
Since I’m comfortable with Ethereum’s utility in terms of providing a platform for smart contracts and decentralized applications, I am by extension comfortable with technologies that enable Ethereum to provide its utility to end users quicker and cheaper which is what Polygon does.
Therefore I am comfortable with Polygon from a halal perspective.
The next crypto on our list is NEAR Protocol with the symbol NEAR.
NEAR Protocol is yet another layer-one blockchain solution to host decentralized applications.
Like other layer-1 blockchains such as Solana and Ethereum, Near made its own set of tradeoffs in terms of transaction speeds, throughput, and interoperability.
It has a specific focus on user-friendliness. For instance, NEAR uses human-readable account names, unlike the cryptographic wallet addresses common to Ethereum.
Compared to other layer-1 solutions, which I am generally comfortable with from a Halal perspective, Near differs in technical and design considerations, not ethical ones.
Therefore, I am comfortable investing in Near from a halal perspective.
The next crypto on our list is Cronos with the symbol CRO
This token is the native token of Crypto.com and powers the full suite of services offered by Crypto.com.
Among these services are crypto collateralized loans, The crypto.com visa card, and a derivates platform with leverage up to 100X
Similar to Binance coin, it seems to me that investing in Cronos is like buying equity in the financial services that crypto.com is offering since the more popular these services become, the higher the price of Cronos will become as well.
The problem with this is that these financial services seem to generate a material part of their revenue from activities that I am not comfortable with from a halal perspective and therefore I wouldn’t feel comfortable owning equity in them.
As a result, I’m uncomfortable investing in this Cronos from a halal perspective.
The next crypto on our list is Dai with the symbol DAI
DAI is an Ethereum-based algorithmic stable coin (stable-price cryptocurrency).
The price of DAI is pegged to the U.S. dollar and is collateralized by a mix of other cryptocurrencies.
Generally, Stablecoins are useful for exchanges, transfers and savings.
I am generally uneasy about algorithmic stablecoins. Dai is even more suspect considering it is pegged to the dollar and backed by cryptocurrencies. So in my mind the probability for this peg to the dollar to be disrupted is quite high.
I should also mention that the way Dai tokens are minted is through a ribawi loan, so I would not feel comfortable being involved in this process.
This does not mean that I think simply holding Dai tokens or using them in an exchange or transfer is necessarily haram since it is possible to do these things without having any interaction with a riba-based loan.
Therefore, while I’m comfortable holding Dai from a halal perspective, I don’t trust the reliability of its peg to the dollar so would only use it for a quick transfer or exchange.
If you want to know which of these cryptos if any I like from an investment perspective, consider following my crypto and stock portfolios by becoming a PIF member, you also get access to privilege content, and a host of other perks by becoming a PIF member link to do so is in the description.
Until next time, make sure to take care of yourself.
Assalam ‘Alaikum and peace be upon you all.