Iranian Journal of Finance

Abstract Money as a medium of exchange signifies anything widely accepted as a means of payment. There are two types of money: commodity money, any money deriving its price from its own intrinsic and inherent value, such as gold or silver, and fiat money, the typical money that does not have intrinsic value but the backing of a government. The concept of digitalization of money was aimed at the enhancement of the function, facilitation, and utilization of money as a means of medium. The first cryptocurrency was created by Satoshi Nakamoto, the pseudonym for an anonymous computer programmer or group of programmers, on January 3, 2009. Muslim countries have been engaged and involved in approaching cryptocurrencies in accordance with Shariah and Islamic principles as new and novel types of money. Cryptocurrencies may be beneficial instruments in capital markets, such as acting as a financial instrument, a medium for clearing and settlement, or an underlying asset in derivative contracts. However, some certain aspects of crypto-currencies can be challenged by Islamic finance and Shariah when it comes to their functions in financial markets, especially, capital markets, such as their cryptic and ambiguous nature rendering Gharar in transactions or difficulty in valuating and accurate pricing due to their volatility and ambiguity or the technology behind these assets. Utilizing cryptocurrencies in financial systems may also cause systemic disorder, which may damage financial plumbing and systems, leading to losses for investors and market practitioners and creating profits for some with no effort (Akl bil batil). The challenges of cryptocurrencies, including security problems in the general aspect, and accurate valuation based on the nuances between their intrinsic values and nominal values, among others, may make the process of institutionalization of cryptocurrencies in the community, more specifically in Islamic capital markets, hard.